Best Small Business Strategy

Best-Small-Business.pngS.pngmall businesses are crucial to the U.S. economy, creating 63 percent (14.3 million) of private sector jobs between 1993 and mid-2013, according to the U.S. Small Business Administration (SBA).

Banks—particularly regional and community financial institutions—play a vital role in their local economies by serving the needs of these small businesses. Small business loans accounted for 51 percent of small business financing in 2012, far exceeding other forms of capital infusion, according to the SBA.

With small businesses more optimistic today, according to the Wells Fargo/Gallup Small Business Index, this could lead them to invest more in their operations, representing new opportunities for the banks that serve them. But as digital lending platforms that focus on the small business market continue to evolve, banks need to work harder to compete for their business.

Bank Director evaluated a number of factors to determine which bank has the best small business strategy. Small business loan volume, based on Federal Deposit Insurance Corp. data as of March 2018, was examined, as well as small business loan growth and SBA loan approvals—both quantity and volume—over a two-year period, ending in March 2018. Because lending isn’t the only product that’s important to small businesses, a case study analysis examined the robustness of each bank’s small business product set compared to regional peers as well as any unique services offered by the bank, and how technology is used to meet client needs. The perspectives of bank analysts were also included in the algorithm.

Each bank was scored compared to its regional peers. Regional winners were then scored against each other to determine the overall category winner. Due to this second scoring, the overall winner’s final score differs from its regional score.

Harmening.pngHuntington Bancshares topped the small business ranking, both overall and among banks in the Midwest, and clearly views small business as an area that can positively impact the rest of the organization. “If you want to serve businesses, you have to serve them through their whole life cycle—from startup [to] expansion [to] succession planning,” says Andy Harmening, senior executive vice president of consumer and business banking at Huntington. All big companies start out small: Huntington knows if you earn a customer’s loyalty at the start, you’ll keep that customer as they grow their business.

It’s one of the reasons why the bank is such a big SBA lender, approving more than 8,800 SBA loans, for a total exceeding $1.6 billion in the period examined by Bank Director. Huntington also had $1.9 billion in small business loans on the books and grew small business loans by 17 percent.

Huntington also offers checking and savings products tiered as the business grows, along with cash management, insurance, employee benefits and business succession planning services. Its “Voice” business credit card—which mirrors its consumer card—lets business owners choose which category of spending is most important to them—office supplies, for instance—and offers 4 percent cash back in that category. (In other categories, the reward is 1 percent.)

Home Bancshares excelled for small business banking in the South, due in large part to a high level of small business loan growth (34 percent over two years). The bank offers online account opening for small-business deposit accounts and features a checking account tailored for troubled businesses “looking to re-establish a strong financial reputation.”

In the West, East West Bancorp ranked high due to its focus on SBA lending, with almost 500 loans approved, for a total of $245 million. It also exhibited the highest level of small business loan volume for the region, at $763 million, and features a robust slate of products, including cash management services, merchant services, insurance and business planning. Its “analyzed business checking” product encourages a deeper relationship with the bank by giving the customer a monthly credit for the balance in the account, which can be applied to offset fees.

Webster Financial Corp. topped the category for the Northeast, due to a high level of SBA activity for the region—270 loans, for $74 million—and a product offering that includes a health savings account (HSA) program for employers, complete with business succession planning and an employee benefits analysis. The bank also stands out for offering online checking and loan applications, and guarantees a loan decision within 48 hours.

Of the banks rated by Bank Director, few offer online deposit or loan applications. As small business customers more frequently expect a seamless, digital experience from their financial partner—and as online lenders continue to grow—this represents a gap that should be addressed by banks that value their small business programs.

How They Ranked: Best Small Business Strategy

SCORE SMALL BUSINESS LOANS (THOUSANDS) SBA LOAN APPROVALS
OVERALL WINNER: Huntington Bancshares 1.61
Northeast
1 Webster Financial Corp. 2.00 $503,996 270
2 M&T Bank Corp. 2.11 $2,173,233 3,085
3 Community Bank System 2.94 $378,862 64
4 Sterling Bancorp 3.83 $321,629 6
5 Signature Bank 4.33 $231,129
Midwest
1 Huntington Bancshares
1.50 $1,907,024 8,804
2 Chemical Financial Corp. 2.50 $1,159,567 293
3 Fifth Third Bancorp 2.78 $907,448 787
4 Commerce Bancshares 3.50 $394,016 128
5 Great Western Bancorp 3.83 $467,174 84
South
1 Home Bancshares 2.22 $897,824 64
2 Bank OZK 2.44 $676,632 69
3 South State Corp. 3.00 $1,103,135 5
4 BankUnited 3.11 $338,774 397
5 FCB Financial Holdings 4.22 $135,269 7
West
1 East West Bancorp 2.44 $762,616 493
2 Cathay General Bancorp 2.50 $652,351 69
3 Western Alliance Bancorp. 2.72 $533,116 125
4 Bank of Hawaii Corp. 2.94 $113,325 69
5 First Republic Bank 4.33 $276,609

SOURCES: Federal Deposit Insurance Corp., U.S. Small Business Administration, bank analysts, bank websites, filings, press releases and other public information