Guest Article: [small] Business is Booming – Is your bank ready to ride the wave?

Guest article from CBA Preferred Service Provider Core10

National surveys indicate that capturing small businesses is a strategic priority for most community banks, yet many feel they lack the comprehensive toolkit to compete effectively.

The landscape of small business has evolved dramatically, particularly in the wake of the pandemic. The surge in new business formations has been fueled by a trifecta of factors: instability in the job market, the acquisition of new skills leading to increased leisure time, and a growing desire for income diversification. Moreover, the barriers to entry for entrepreneurship have never been lower, with minimal costs and expertise required to establish a business online. The rise of non-employer SMBs, now numbering over 27 million out of the nation's 33 million, highlights the growing phenomenon of side hustles and digital entrepreneurship.

Yet, community banks are struggling to gain market share in this sector. In the SMB market, the top four U.S. banks claim 55% of primary business banking relationships. Community banks only command a fraction of this market. This trend persists despite surveys revealing that SMBs express a desire to work with smaller banks. Why?

Research indicates a shifting landscape in small business banking preferences. Fintech solutions are gaining traction by offering streamlined, automation-driven services that cater to the evolving needs of modern entrepreneurs. As a result, the majority of SMBs relying exclusively on banks for payments or credit decreased from 64% in 2020 to 45% presently, signaling a need for community banks to adapt and innovate to remain competitive in meeting the needs of modern entrepreneurs. Furthermore, net promoter scores among business owners paint a mixed picture, with community banks scoring lower than regional banks and significantly lower than large banks. Neo banks, with their innovative digital-first approach, are also gaining traction among small business owners, further intensifying competition in the market.

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