Lending to Small Businesses - Impact on Bank's Profitability

DALLAS, Texas, June 24, 2010 - Small and medium enterprises represent around 99.7% of the
total business establishments in the U.S, and contribute 40% to the country's
GDP. In 2009, twenty nine million small businesses operated in the U.S. Small
businesses allocate 6 to 10% of their total spending to financial products
and services such as cash and credit management, trade financing, payroll
processing and treasury services. It is observed that banks that successfully
target the small business segment earn better net interest margin (NIM) and
return on asset (ROA) compared to those who do not cater to the small
business segment.

Browse in-depth ToC of U.S. Small Business Banking Trends
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Economic crises in the U.S. impacted availability of
loans/credit to small business owners and 2008 and 2009 witnessed a decline
in lending to small businesses. However, leading banks such as Bank of
America, Wells Fargo, JP Morgan Chase and others are now showing a great deal
of interest in lending and, thus, driving up the amount of loans to the small
businesses. In the first quarter of 2010, Wells Fargo's new loans to small
businesses amounted to $2.9 billion.

Also, a key strategy of the banks is to encourage deposits
from the small business owners to improve customer retention and cross
selling. Wells Fargo, Bank of America, Key Corp, U.S. Bank and several others
offer bundled personal banking products with business banking products to
achieve better cross sell ratios.

Small business banking offers huge opportunities for banks,
however, a recent trend indicating increased failure rate of small businesses
is a matter of concern for the banks lending to small businesses. Moreover,
loan failure rate for small businesses increased to 12% in 2009 from 8.4% in
2007. To improve profitability, from dealing with small businesses, our study
suggests that the banks need to centralize their operations, redefine the
role of lending officers and deploy credit risk management and business
intelligence/analysis tools efficiently.

U.S. Small Business Banking Trends is a study of banking
products used by the small businesses and the changing trends in small
business banking. The study is designed to provide insights on the behavior
and attitude of the small businesses towards the banking products offered by
large as well as small banks.

    Key findings from the report

    - In 2009, small businesses spent around $469 billion on financial
      products and services; this figure is expected to reach $592 billion by
      2014, growing at a CAGR of 4.8% from 2009 - 2014.

    - An analysis of a sample of banks revealed that NIM of banks that
      provide loans to small businesses is 3-4 times higher than the NIM of
      banks that either do not lend or are less focused towards lending to
      small businesses.

    - A survey indicated that around 44% of the small business owners prefer
      to use credit cards for funding business cash flows and 27% opt for
      bank loans.

    - Banks provide customized credit card along with reward points and cash
      back offers to increase client base and encourage frequent use of
      credit cards.

    - A recent survey of small business owners indicated that around 7% of
      the small business owners use payroll services, 11% use Automated
      Clearing House (ACH) transfers and around 8% use RDC.

    - Banks targeting small businesses have implemented enhanced credit risk
      management systems and business intelligence/analytic tools to identify
      profitable and non-profitable small businesses.

    - In order to improve customer retention and new client acquisition,
      large banks (asset size more than $50 billion) have devised a one-stop
      solution provider model under which they offer additional services such
      as HR services, business insurance and healthcare insurance for both
      employer and the employees.

    - Customer retention is a key focus area for banks. Product bundling is a
      major strategy banks are adopting to improve cross-selling apart from
      competitive pricing and secured deposits. Banks that employed product
      bundling strategies achieved a cross sell of around 3 to 3.5 products
      per customer.

    - A key concern for banks lending to small businesses is the increasing
      rate of small business bankruptcy from 2006, and sharp increase in the
      loan default rate for Small Business Administration (SBA)-backed loans
      from 2007.

Scope of the study

Strategy formulation

This section addresses key issues and opportunities in the
small business banking industry along with its current and future trends. The
report provides a detailed analysis of the various small business banking
products, such as online banking, merchant services, lending services,
investing and insurance services, and HR solutions, to help identify usage,
need and competitive strength of these products. The section also analyzes
and discusses in great detail key banks serving small businesses and their
market share.

Business model

The section discusses various market entry strategies followed
by successful small, medium and large banks in the small business banking
industry. It also reviews and analyzes case studies of small business banking
and various pricing and product strategies adopted by the key players.

Vendor Analysis

To help banks select the most competitive service provider,
this study provides an in-depth analysis of the vendors providing services to
banks to help them serve small businesses. The section has benchmarked
vendors across product complexity, features, prices, returns and
customization to present the best choice for a service partner (vendors) to
banks.

About MarketsandMarkets

MarketsandMarkets (M&M) is a global market research and
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and serve as a business intelligence partner to Fortune 500 companies across
the globe. MarketsandMarkets also provides multi-client reports, company
profiles, databases, and custom research services.

M&M Banking and Financial Services Practice recognizes the
challenges that financial institutions face while bringing the right products
to market. Our reports and consulting practice provides a unique perspective
allowing financial institutions to understand and strategize to achieve their
product goals. Through a mix of case studies, primary research, and business
modeling we provide a 360degree view to identify how our clients can create,
capture, and retain the value of their products and outthink the competition.

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Contact: Ms. Sunita, 7557 Rambler Road, Suite 727, Dallas, TX 75231, Tel: +1-888-989-8004, Email: sales at marketsandmarkets.com .