Banks and Business

Jim Blasingame

What do Henry Ford, Walt Disney, Mary Kay Ash and Bill Gates have in common? Yes, they all founded large U.S. corporations that flourished in the 20th century.

But the correct answer is that all of their empires began life as a small business.

Also, implicit in this connection is another commonality: They all had to find ways to capitalize their businesses. And since the lion’s share of small business capital has perennially come from banks, somewhere in the early history of these companies a bank likely played a pivotal role.

Indeed, in the 20th century, banks became the best friends of small businesses. And small firms became a very profitable sector for most banks, too.

In fact, studies indicate that when a bank handles all of a small company’s financial requirements – loans, checking, cash management, investment services, the owner’s personal banking, etc. – the profitability of that relationship soars for the bank.

But based on conversations with bankers, the previous three years haven’t exactly been golden for the bank/small business relationship.

For example, Richard DeKaser, senior vice president of National City Bank, told me recently that loan applications from small businesses were down drastically for the three year period from 2001-2003.

But the first three years of the new millennium are no model for what’s happening in 2004. Economic recovery is afoot, and it’s time for banks and small business to get back together.

While the last century belonged largely to major corporations, the new one is the century of the entrepreneur. Obviously, this is good news for banks that understand how the world has changed for small business. Here are examples:

1. Banks should expect to see smarter entrepreneurs coming in their doors. The marketplace is more sophisticated, as are small businesses that have survived the last three years.

2. Opportunities and challenges are more complex for small businesses today, and they need relationships with banks that understand this.

3. A recent study revealed that 21st century balance sheets are heavier in intellectual property and lighter in hard assets.

Banks will see more proposals for projects that use fewer serial numbered assets and more intangible assets. These proposals will address virtual opportunities powered by technologies, like the Internet, which today are required to effectively compete in the global marketplace.

4. With plenty of banking competition on every corner – not to mention online – these savvier entrepreneurs don’t have to deal with a bank that isn’t operating with 21st century perspectives and practices.

The good news for banks is that sophisticated customers are more profitable customers, both in the short and long term.

Write this on a rock... Opportunities abound for small businesses and for those banks that understand 21st century small business capital requirements.

Jim Blasingame
Small Business Expert and host of The Small Business Advocate Show
©2008 All Rights Reserved

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