Small Business Lending: The Traditional Banker Is Dead

You might think this is an overstatement, but times are changing and the above headline might not be as much hyperbole as you think. So far as small business banking is concerned, I’m convinced it’s true for the traditional approach to business lending. Small business lenders can’t afford to do business the same way they did 10 years ago and hope to stay relevant much longer.

It’s no secret the last 10 or 15 years have been tough for community bankers, as their ranks have diminished. One of the traditional roles these bankers play in their respective communities has centered on their partnership with the Main Street businesses that help local economies thrive and grow.

Unfortunately, small businesses have suffered right along with their banker partners as regulations and restrictions seemed to clamp down on small business credit. The credit crunch that started in 2008 made it difficult for bankers to partner with the smallest businesses in their community, which has cost jobs and hurt local economies.

“I fired all the bankers.”

Nevertheless, despite the regulations and the inherent risk associated with young Main Street businesses, the real challenge facing community bankers is the old paradigm many still use to inform how they do business in an age when the market is clamoring for something different.

Not long ago I had an interesting conversation with a Vice President of a bank that is very actively lending to small business.  He is extremely focused on making the business loan process easier for his customers and more profitable for his bank. I was surprised by his comments. You might be too.

“When we really started to have success is when I fired all the traditional ‘bankers’,” he said. “and hired traditional ‘sales’ professionals to replace them.”

He argues salespeople make better loan officers because they operate from a different point of view than traditional bankers. I think he may be right (and it’s hard to argue with their results — they are one of the largest and most active SBA lenders in the country).

That’s not to say there aren’t a lot of highly-qualified loan officers who are doing great work today, but I’m convinced those that stand out, whether they are aware of it or not, are those that approach the small business loan process like a sales cycle. Here are just a few of the traits I think exceptional loan officers have that look more like professional sales skills to me:

1. They don’t sit at their desk waiting for the call: They tend to proactively search for opportunities rather than waiting for them to fall into their lap. They find reasons to visit with small business owners in their area or get them on the phone to introduce them to their bank and offer services that include small business loans—with much success I might add. They prospect to fill their loan pipeline the same way a salesperson would.
2. They don’t let grass grow under their feet: They understand the difference between creating a new customer and losing the deal is often how quickly they respond to the first email, phone call, or web enquiry. Professional sales people know what they do in the first few minutes after they receive a new “lead” is critical to a successful “sales” call. The loan officers who seem to be most successful interact with customers the same way. They don’t want to leave potential loan customers waiting or wondering.
3. They leverage appropriate technology to help them maximize their effectiveness: The most successful loan officers I know are early adopters of the technology professionals in other industries use to help them keep track of communications and information about potential customers within their pipeline—even if it’s not yet universally embraced by their bank. They understand the value of keeping all their customer information centralized so it’s always at their fingertips. They appreciate the technology that allows them to do this and look for ways to leverage technology to maximize effectiveness.
4. They understand “not ready now” doesn’t mean “never ready”: They take advantage of technology to help them “keep in touch” with potential loan customers who might not be ready for a small business loan today, but could be a great customer down the road. Successful sales people use software tools to help ensure an invitation to “Call back” in three months or six months never slips through the cracks. The most successful loan officers do the same thing.
5. Look for reasons fund the deal, not for reasons to decline:  Too many business bankers decline the deal before they ever have any communication with the customer.  They find a bad stat or a small red flag and kill it before the discussion even begins.  The best loan officers work with the business owner to learn about their business, understand their challenges, and look for ways to help them succeed (even if they can’t fund the deal right now).

My friend (the VP at the bank mentioned above) opted to replace his bankers with salespeople to encourage these (and other sales-related) traits within his small business loan department—a drastic move that seems to be paying off for him. Whether or not you opt to follow suit, the small-business banking environment is not the same as it was prior to 2008 and bankers need to look at the market from a different paradigm.

Non-bank, online financial services companies are aggressively pursuing many of the small business customers traditionally served by community bankers. Over the last couple of years I’ve also noticed bankers interested in doing more small-business loans are utilizing many of the techniques used by their non-bank colleagues and creating new loan products to compete with non-traditional lenders. Some are even acquiring alternative lenders to add their loan products and incorporate their sales techniques.

The traditional approach to small business banking may not be dead yet, but it’s definitely on a respirator. What are you and your bank going to do about it?