Small businesses are the backbone of local economies, yet many financial institutions don’t truly understand what they need. The evidence is striking: loan applications from small businesses dropped to just 34% in 2024, down from 43% in previous years. Meanwhile, these same businesses are spending up to $340 monthly cobbling together different financial tools and services to manage their operations. This disconnect reveals a massive opportunity – small businesses desperately need integrated solutions from financial partners who understand their complete picture.
Success in small business banking isn’t about having the most products or the lowest rates. It’s about understanding the full scope of challenges that force businesses to juggle multiple expensive solutions – their cash flow complexities, payment processing needs, and operational inefficiencies. The financial institutions that thrive will be those that can consolidate these fragmented tools into comprehensive, integrated offerings that actually solve problems.
Building Long-Term Relationships That Matter
The insights gathered through understanding small business needs become the foundation for creating unique value propositions that set your financial institution apart. In an era where small businesses can choose from traditional banks, credit unions, fintechs, and online lenders, differentiation comes from translating deep understanding into tailored solutions that address specific pain points. This is why the “understanding” phase is so critical – it enables financial institutions to move beyond generic offerings and create services that resonate with their local business community’s actual needs.
Supporting small businesses requires a long-term commitment that goes beyond individual transactions. Community banks tend to form stronger relationships with small businesses, which helps overcome ‘informational opacity’ – the lack of clear financial information that often challenges lending decisions. This relationship-based approach allows banks to evaluate creditworthiness through intangible factors like the owner’s reputation in the community, business track record, and industry knowledge. Over time, these deep relationships create mutual trust that benefits both parties: small businesses gain a financial partner who understands their unique challenges and seasonal fluctuations, while banks develop loyal customers who bring multiple revenue streams through deposits, loans, and fee-based services. The most successful institutions recognize that investing time in understanding each business’s story, goals, and challenges yields far better results than purely transactional banking.
Key Strategies for Relationship Building
Regular Communication: Just 41% of survey respondents said they talk to someone at their financial institution about the business’ finances at least once every six to 12 months. Institutions should establish quarterly check-ins at minimum.
Proactive Problem Solving: Use data and insights to identify potential challenges before they become critical. If a business shows declining deposits or irregular cash flow patterns, reach out with solutions.
Celebrating Success: Recognize client milestones, whether it’s a business anniversary, expansion, or community recognition. This demonstrates genuine interest in their success beyond banking transactions.
Flexible Support: Understand that small businesses face unique challenges. Being willing to work through difficult periods builds loyalty that lasts decades.
Understanding What Small Businesses Really Need
The first step in supporting small businesses is understanding their specific challenges and requirements. Rather than making assumptions, successful financial institutions take a proactive approach to gathering insights directly from their business customers.
Building Effective Feedback Mechanisms
One key to succeeding in the small business market is simply asking questions and listening. CNB Bank discovered this when they asked small business clients whom they considered their personal bankers. The surprising responses revealed gaps between what the bank assumed and what customers actually experienced.
Financial institutions can implement several strategies to gather meaningful feedback:
Quick Surveys and Assessments: Deploy brief, targeted surveys after key interactions or quarterly check-ins. Focus on specific pain points like cash flow management, payment processing, or lending needs. Digital surveys through online banking platforms can capture real-time feedback while maintaining convenience.
(Source: FDIC – Small Business Lending Survey)
Relationship Manager Programs: 47 percent of survey respondents cited dedicated relationship manager support as among the top criteria for choosing their primary bank. These professionals serve as trusted advisors who understand each business’s unique financial situation and industry challenges. Regular face-to-face meetings allow relationship managers to identify needs before they become critical issues.
(Source: McKinsey – Banking Matters)
Community Engagement: Banks that participate in community events show they care and have something to offer. Attending chamber of commerce meetings, sponsoring local business associations, and hosting educational workshops creates informal opportunities to understand business owner concerns.
Advisory Boards: Some institutions create small business advisory boards comprising local entrepreneurs from various industries. These boards provide ongoing insights into market conditions, emerging needs, and feedback on new products or services.
Analyzing the Data That Matters
Beyond collecting feedback, institutions must analyze patterns to identify common challenges. 59% of all businesses sought financing in order to meet operating expenses in 2023, while 46% needed capital for expansion. This data helps banks prioritize product development and service enhancements.
Key areas to assess include:
- Cash flow management challenges
- Payment processing needs
- Access to working capital
- Technology adoption barriers
- Industry-specific requirements
Demonstrating Investment in Small Business Success
Understanding needs is only the first step. Financial institutions must actively demonstrate their commitment through tangible support and solutions.
Beyond Traditional Banking Services
Modern small businesses need more than checking accounts and loans. Small business borrowers are generally located close to a bank’s branch locations, making local banks ideal partners for comprehensive support.
Successful institutions offer:
Educational Resources: Host workshops on financial literacy, digital marketing, cybersecurity, and business planning. 42% of small business owners admit they had limited or no financial literacy before starting their businesses, creating significant opportunity for banks to add value.
Networking Opportunities: Facilitate connections between small business clients through events, online communities, or referral programs. This positions the bank as a hub for local business growth.
Technology Solutions: Help businesses adopt digital tools for accounting, inventory management, and customer relationship management. Many small businesses find technology adoption challenging due to cost and complexity.
Flexible Lending Products: Develop loan products that address specific small business needs, from equipment financing to seasonal lines of credit. 57% of small business loan applications sought $100,000 or less in funding, indicating demand for smaller, more accessible financing options.
(Source: Federal Reserve Small Business Credit Survey)
Creating Visible Impact
Financial institutions should communicate their small business support through:
- Success stories featuring local business clients
- Published data on small business lending volumes
- Community investment reports
- Participation in Small Business Week and similar initiatives
Leveraging Technology: How Finli Empowers Financial Institutions
Modern financial institutions need sophisticated tools to deliver the comprehensive support small businesses require. This is where solutions like Finli become game-changers for community-focused banks and credit unions.
What Finli Offers
Finli provides financial institutions with a white-labeled integrated receivables and digital services platform specifically designed for small businesses. The platform helps FIs attract and deepen small business relationships by solving pressing operational challenges.
Key capabilities include:
Digital Payment Processing: Small businesses can accept payments through ACH, Credit Card and ApplePay, with funds deposited directly into accounts at the financial institution. This keeps deposits within the bank while providing businesses with modern payment capabilities.
Integrated Receivables Management: The platform streamlines invoicing, payment collection, and reconciliation, addressing critical cash flow management needs that keep many small business owners awake at night.
Data-Driven Insights: Finli provides financial institutions with first-party transaction data, enabling better understanding of business performance and more informed lending decisions. This real-time visibility helps banks proactively support their clients.
Seamless Integration: The platform integrates with existing banking systems through single sign-on (SSO) and custom APIs, creating a unified experience for both bankers and their small business clients.
Strategic Benefits for Financial Institutions
By implementing Finli, banks and credit unions can:
Differentiate from Competitors: Offer a comprehensive business toolbox that goes beyond traditional banking services, matching or exceeding fintech capabilities while maintaining the personal touch of community banking.
Increase Deposit Retention: Payment processing through Finli ensures funds flow directly to accounts at the institution, reducing deposit leakage to third-party processors.
Improve Risk Assessment: Access to real-time business performance data enables more accurate credit decisions and proactive relationship management.
Meet CRA Requirements: As a Public Benefit Corporation, Finli helps financial institutions support underrepresented businesses and meet Community Reinvestment Act obligations.
Takeaways
Supporting small businesses isn’t just good community service – it’s smart business strategy. Finance markets have a fundamental role in funding new innovations and supporting business investment, making financial institutions critical partners in local economic development.
By understanding small business needs through active listening and engagement, demonstrating commitment through comprehensive support services, and leveraging innovative solutions like Finli, financial institutions can build the deep, profitable relationships that benefit everyone involved.
The institutions that succeed will be those that view themselves not just as lenders or service providers, but as true partners invested in their small business clients’ long-term success. In an era of increasing competition from fintechs and large banks, this commitment to relationship banking remains the competitive advantage that community-focused institutions can leverage for growth.
