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Breaking the Small Business Banking Catch 22
Even greater than James Cameron’s crushed ego these days is the the populist call for more lending to small businesses. Heck, President Obama has had this call on auto replay for months now.
But when an objective look at the small business banking apparatus in the U.S. finds a glaring shortcoming: banks don’t seem to care about the particular needs of specific subsections of the small business world. And if they did, perhaps the call for “more lending to small businesses” would be more easily countered – and addressed.
Banks have classically been caught in a small business banking catch 22. The financial rewards of small business banking are too small to merit a niche-by-niche focus. It doesn’t matter, for example, if the definition of an asset in the media sector (a sector I am, alas, familiar with) is vastly different from the manufacturing sector. Banks generally dump all their small business banking businesses in one, pan-small business bucket. (City National Bancorp of Los Angeles is one that does not, parenthetically.)
Banks can change their small-business-banking approach. Technology allows for far greater specificity. Banks can far easily see the shades of gray between small business subsectors and address them accordingly. I have little doubt that the results of this effort will include margin expansion – on small business loans, too – even with the additional infrastructure costs this strategy would demand. Treating all small businesses alike was unavoidable, say, 10 years ago. Today, it is wholly the opposite.
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