Jeff Judy

Jeff's Thoughts - May 7, 2014

Too Much "Small", Not Enough "Business"

The President has proclaimed next week "National Small Business Week". In our own industry, the "small business" market seems to be rediscovered on a regular basis. Every now and then, one bank or another realizes that there are a lot of small businesses, and they need a lot of services. At some of the big banks, "small business initiatives" are launched and relaunched again and again.

At the same time we are embracing small businesses with enthusiasm, we are sometimes overlooking the most important thing about a small business, namely, that it is a business.

That may seem obvious, but as credit scoring has become more and more prevalent, and as credit limits around the decisions (sorry, "recommendations") made by software go higher and higher, the dividing line between commercial and retail credit has blurred considerably at the small business end. Even if your bank does not rely on credit scoring of small businesses in lending decisions, it is hard not to be influenced by the massive shift in the industry's approach to this market over the last decade or two.

Now, I'm not arguing against credit scoring, or even for or against any particular approach to credit analysis of your small business customers. It isn't the analysis, and the decision, that I'm worried about.

I'm worried about how we sometimes treat small business customers. As we get more accustomed to thinking about their numbers, their financials, in the same way we handle the numbers for individual consumers, we start to lump the two groups together conceptually. And that is a mistake.

When you think about it, it seems that commercial credit, for small businesses, is a more personal issue than traditional "personal banking"! Suppose I come in for an auto loan to buy a pickup truck. In the end, you decline, and whatever fancy explanation you use, what I hear is, "You do not make enough money."

Now, as an individual, I might be disappointed. But I can blame my job, or my employer, or "circumstances". Declining my credit application revealed that my situation wasn't as good as it could be, due largely to external factors.

If you turn me down for a loan to buy a pickup I'm going to use in my business, on the other hand, I'm liable to be more than disappointed. There's a good chance I'll be insulted and angry. What I hear in your decline is, "You don't run your business well enough, you aren't a good enough business person." Regardless of how similar the analysis may be, when I sit across the desk as a consumer, I'm asking if my current circumstances support a loan. When I sit across the desk from you as a business owner, I'm asking you to evaluate my performance.

The truth is that there is less difference between a small business and a big business than there is between a small business and an individual consumer. And the way you interact with your small business customers has to keep the "business" in the relationship, regardless of your analysis methods, if you hope to earn their loyalty and the opportunity to extend additional services to them.