Technology hasn't deleted business owners' need to know their banker.
There is a lot going on in business banking, topped by increasing customer preference for mobile transactions and a heightened need to protect online activity from hackers.
Banks are making more loans in the expanding economy and facing plenty of competition. They are waiting to see if the Trump administration and Republican-controlled Congress will ease some of the regulations imposed on their industry after the Great Recession.
But some central Ohio bankers say an old-school, one-on-one relationship with a local bank is trending as well. That's especially the case for owners of small and mid-sized businesses.
“They still prefer to meet in person and are very relationship-driven,” says Jeremy Gutierrez, central Ohio business banking manager at Huntington National Bank. “There is still a core need to meet with someone in person so the banker understands how they can add value to that relationship above and beyond just a banking product.”
Park National Bank Vice President of Commercial Lending Chris Schneider says online loan applications that base approvals on credit scores are trending, even though borrowers are often better served by paying a visit to a bank.
“You have no guidance from an (online) lender and probably will pay a higher interest rate,” she says. “We still pride ourselves on underwriting each individual and understanding what (the business owner's) goals and needs are. Our goal is to build a relationship early on even with smaller loans. Then as the business grows, we have an understanding of its operations and can respond quickly.”
Park National also offers mobile banking, understanding that consumers and businesses like the ease of using their phones to make deposits, check account balances and see if a loan payment has cleared. With that comes the need to provide mobile and online customers with fraud protection, including text and email alerts when irregularities are spotted.
“The businesses I work with often don't have a full-time tech person or staff that's constantly aware of threats to electronic transactions,” Schneider says. “We want to help them with that.”
Huntington has introduced a Business Security Suite tool that allows customers to see transactions on their accounts before they're completed.
“Then the business owner can say, ‘Yes, this looks like a good debit against my account and should be funded,' or the opposite of that,” Gutierrez says. Customers have the ability to raise a red flag on questionable transactions and ask the bank to look into them.
It has become clear to Huntington bankers that small-business owners, especially millennials, expect to be able to open accounts, make deposits and fill out loan applications on their mobile devices. Gutierrez says digital engagement is a “preferred lifestyle” for some business owners, who view it as a more efficient process.
Interestingly, some Huntington business customers want to start the loan application process online and finish it in person. Gutierrez says he's happy to oblige.
“At the end of the day it's all about trying to create an optimal and convenient experience for the customer.”
Current trends in business banking most certainly center around using technology for treasury management, says Jennifer Griffith, regional president for First Merchants Bank in Columbus. That includes protecting a customer's accounts from fraud, managing working capital and finding efficiencies in their operations.
“Online banking and access to very detailed information about your cash position is available more today than it has ever been,” Griffith says. “It really helps business owners be knowledgeable about where they are and where they need to go.”
In Griffith's view, most of the trends in business banking—mobile banking, paying bills online and fraud alerts—apply to the consumer side as well.
“A lot of it doesn't separate,” she says. “But there may be a little more technological enhancement in the business banking space than the consumer space.”
Mobile banking by small business customers is certainly on the rise at Chase. The number of mobile logins among business customers grew by 31 percent between the fourth quarter of 2014 and fourth quarter of 2016, says Jeff Lyttle, a managing director at JPMorgan Chase & Co. in Columbus. In addition, the number of small-business transactions involving a teller at Chase branches fell 19 percent during that period.
Lyttle says Chase has also embraced online loan applications. Its new Quick Capital product offers loans up to $200,000 for qualified customers.
“The application process can be completed in just a few minutes,”
Lyttle says. He adds that Chase research shows online lending to small businesses from all financial institutions grew from $1.6 billion in 2012 to $9.6 billion in 2016.
Whether it's in cyberspace or at a branch, banks have money to loan in the expanding economy and face plenty of competition from other lenders.
“Oh my gosh, that's absolutely a trend,” Griffith says. “There is a lot of competition in the business banking space, especially in Franklin County.”
While good deals can be had, borrowers need to understand that a loan decision involves much more than just agreeing on an interest rate.
“It's the amount of funds, the term and the collateral you're pledging,” says Park's Schneider. “I can't stress enough how important it is for a business owner to build a relationship with a banker.”
The rise in lending activity in central Ohio is evident in the number of loan approvals by the US Small Business Administration's Columbus District Office. It signed off on 1,782 SBA loans totaling $569 million in fiscal year 2016. That's a 7 percent increase compared to the prior fiscal year, says District Director Rick Garcia.
The Columbus office works with 144 lenders in a 60-county region and operates 13 small-business development centers and a women's business center. The agency also works with seven chapters of the Service Corps of Retired Executives, whose members provide counseling to fledgling companies. It has online tools, as well, that help with things such as creating a business plan, qualifying for government contracts.
“A lot of small businesses don't seek management assistance or vetting of their business plan before making a loan application,” says Scot Hardin, deputy director of the SBA's Columbus office.
That's a big mistake, he says. Other errors he points out include underestimating startup costs and not putting up your own money to share in the loan risk with a lender.
Such advice fits with the SBA's focus on helping small-business owners put themselves in a position to qualify for financing. That can be from a traditional bank, credit union or alternative sources of capital such as crowdfunding, angel investors or private equity firms.
Credit unions, often overlooked as a source for business financing, have been expanding their business lending because of rising demand for capital in a growing economy. At Telhio Credit Union in Columbus, for instance, the maximum lending limit has increased from $150,000 when it started making business loans in 2009 to $2 million today, says Derrick Bailey, vice president of business services.
Over that time, Telhio has become one of the top 10 SBA lenders in the Columbus district.
Like its banking counterparts, Telhio sees increased demand for mobile banking. It and other credit unions are also in a good position to capitalize on a not-so-positive trend: rising fees and penalties on checking accounts, credit cards, ATM withdrawals, overdrafts, wire transfers and other transactions.
“Our purpose is a little different,” Bailey says. “Credit unions have no shareholders—we have members—so we are able to pass on those savings in the form of reduced fees and can compete with regional banks.”
Meanwhile, banks are tracking the efforts of President Donald Trump to ease federal regulations imposed by Congress and the Obama administration at the end of the global financial crisis.
In February, Trump ordered Treasury Secretary Steven Mnuchin to review the 2010 Dodd-Frank Act that aimed to restrain banks from the sorts of misdeeds blamed for the recession. Democrats such as Ohio Sen. Sherrod Brown, his party's leader on the Senate Banking Committee, say the law has reduced the risk of future crises and has had no negative impact on lending to businesses.
But Trump has agreed with many in the financial industry who say the law went too far in restricting how banks do business.
“It's a positive for sure,” Schneider says of expected regulatory changes. “It will allow us to get back to the basics of meeting the individual needs of a business operator. Not all businesses are the same, but sometimes the regulations treat it as such. We're not always able to give credit to a (business owner's) individual management abilities and experience.”
First Merchants' Griffith thinks Trump's economic policies in general should create more competition among lenders and improved access to capital for small businesses.
“At his core,” she says, “Trump is interested in promoting economic growth. That should create opportunities for small and mid-sized businesses and for those in the banking business.”
Jeff Bell is a freelance writer.