Small Businesses Bank on Relationships

By Heather Robinette

Today, small businesses have an increasing number of choices when it comes to lenders. They aren’t limited to the banks in their communities but have many other online options at their fingertips.

For Arkansas lenders, relationships are still the key to success in working with small business owners. Yet, often unintentionally, lenders can damage the relationships they are trying to cultivate with poor communication.

Setting Expectations

The biggest reason for dissatisfaction among bank loan applicants was wait times for a credit decision, according to the Federal Reserve Small Business Credit Survey.

Keep in mind, many prospective borrowers expect that the business loan process is similar to getting a home loan or car loan. Their past experience with consumer lending often leads to unrealistic expectations.

When consumer loans are their only point of reference, they don’t understand why they can’t get 100-percent financing, and they think they can get a small business loan in a couple of weeks when actually it may take a couple of months – if they are creditworthy and have all their documentation in order.

For greater customer satisfaction, help your small business customers adjust their expectations, using these tips:

  • Be Direct. At your first meeting, spell out the loan time frame. Share what is typical for the type of project.
  • Explain the Process. Help the customer understand the stages of the loan process and why it can be lengthy.
  • Empower Customers. Let customers know what they can do to make things go smoother and faster, such as providing a complete loan package.
  • Avoid the Blame Game. When a customer asks the status of a project, avoid vague answers that sound like you're passing the buck, such as “It’s at SBA” or “We’re waiting on underwriting.” Those statements don’t provide any real information. If the loan application is at SBA, say when you expect to hear back.
  • Be Proactive. While a loan application is moving through the approval process, reach out and keep the customer posted on its progress. Proactive communication will put the customer at ease and foster a more trusting relationship.

You may not be able to shorten the loan timeline, but you can communicate clearly at every stage of the application process.

Avoiding Missteps

If your institution targets small business customers, understanding what drives their behavior can make the difference between developing good and lasting relationships with them and just keeping them on the books.

Lenders looking to attract and keep small business customers should avoid these missteps:

  • The Slow No. Delivering a negative answer is unpleasant, but wasting a customer's time is worse. Taking a long time to decline a loan is the quickest path to negative word-of-mouth.
  • Positive Ambiguity. Entrepreneurs often hear what they want to hear. A lender may say, "That is an interesting project. I'll take a look at your business plan once you've completed it." The entrepreneur hears, "Joe Banker is interested in funding my project. All he needs is my business plan." Be careful about giving a customer a false sense of a project's fundability.
  • Too Much Banking Jargon. Terms that are common among lenders – like "debt coverage," "loan to value," or "ratio analysis" – are just empty words to a lot of business owners. Many don't understand the difference between profitability and cash flow or know the definition of working capital.

The real problem is that they don't want to admit to you that they don't know what you're talking about. When you see glazed looks in their eyes or get a rambling answer to a question with a financial term, you'll know you need to rephrase financial concepts into more borrower friendly language.

At the Arkansas Small Business and Technology Development Center, we hear lots of comments from clients about their experience with banks and the small business loan process. Some are positive. Some are not. What is clear is that timely and straightforward communication matters, even when you can’t say yes to a funding request.

Heather Robinette is a Consulting and Market Research Manager for the Arkansas Small Business and Technology Development Center at the University of Arkansas at Little Rock.