Community banks are gaining ground in the banking sector, scooping up small business customers that are feeling underserved by bigger institutions.
The four largest US banks – Bank of America, Citibank, JP Morgan Chase and Wells Fargo/Wachovia – currently hold the greatest share of small-business customers, according to a report from Aite Group released Thursday. But community banks are growing their share at the fastest rate, often at the expense of large banks.
Roughly 35 percent of US small businesses consider a community bank to be their primary financial institution, up from 24 percent in 2006.
The report revealed that large banks are failing to connect with small businesses. One of the reasons is that they struggle to understand their needs.
“Large banks are missing the boat when it comes to effectively serving and cross-selling to small-business customers,” said Christine Barry, research director with Aite Group, in a press release. “This is evidenced by the declining satisfaction rates of their customers and their failure to meet cross-selling needs.”
Such a customer base is crucial, even for large banks, at a time when deposits are precious commodities.
Small banks have been able to make headway by purchasing failed community banks, as reported by The Big Money this week.
“As the continuing real-estate crisis pushes more tiny banks into failure, the most common saviors have been other small banks, community banks, small thrifts, and modestly sized lenders,” Heidi Moore wrote.
But small banks aren’t necessarily a safe haven from troubles ailing their bigger competitors.
Although banks with over $10 billion in assets hold over half of commercial banks’ total commercial real estate whole loans, smaller banks have an overall greater exposure to commercial real estate, according to a report from the Congressional Oversight Panel.
Sheila Bair, chairman of the Federal Deposit Insurance Corporation, recently voiced concerns about the risk that commercial real estate poses to community banks, noting that commercial real estate comprised more than 43 percent of the portfolios of community banks.
Those concerns are well founded, as commercial real estate has played an increasingly large role in bank failures. For the 205 banks that have failed since 2007, a third of their loan portfolio has been made up of commercial real estate loans, compared to an industry average of 26.9 percent, according to investment bank KBW. The seven banks seized by the Federal Deposit Insurance Corporation last Friday had an even higher concentration with almost 40 percent of their loans tied up in commercial real estate.
If write downs increase as expected, it could ultimately create capital problems for community banks, which could in turn curb lending to small businesses.
“The current distribution of commercial real estate loans may be particularly problematic for the small business community because smaller regional and community banks with substantial commercial real estate exposure account for almost half of small business loans,” the COP report published in February said. For example, smaller banks with the highest exposure to commercial real estate provide around 40 percent of all small business loans.
The AICPA is in the cloud and wants you to join them, accounting industry. Being a preferred financial application for the AICPA can pay off so before you start ripping on accountants remember they (and especially their clients) have a metric shit ton of money.
The technology push came quite some time ago (XBRL anyone?) and CPAs are generally on top of it. You can’t get them to blog (Tracy Coenen can tell you more about that) but you can definitely get them worked into a lather over something that will make their lives easier.
Intacct is learning what being on the AICPA’s good side can do for one’s business.
The American Institute of Certified Public Accountants is pushing to accelerate adoption of cloud solutions among its 350,000 members, focusing especially on small and midmarket companies as well as CPA firms. The AICPA’s first official endorsement of a cloud vendor, payroll solutions provider Paychex, came several years ago. But the institute has rolled out more such partnerships with increasing frequency, including with bill.com for invoice management and payment in 2008, financial management and accounting software maker Intacct a year ago, and tax-automation supplier Copanion at year-end 2009.
Intacct president and CEO Mike Braun was beside himself when the AICPA began pushing his product, acknowledging that an endorsement from them meant unprecedented reach in the industry. Awesome, the AICPA has finally joined with technology instead of fearing it. How dare I make broad generalizations about the AICPA’s conduct over the past few years?
A previous example of the AICPA’s tech phobia: It only took them 6 years to figure out what to do with BEC on the computerized CPA exam and they still aren’t sure how to treat it. No one is bitter but it’s a tad disturbing that CPAs were taking a professional licensure exam with paper and pencil up until 2003. They’ve had all this time to assemble BEC into something that isn’t the CPA exam’s junk drawer but still can’t manage to cobble together a storyline for the section.
One can only hope that the cloud can get the AICPA BoE to have an epiphany on that point. In the meantime, this is one hell of an endorsement so good for technology but even more credit is due to the AICPA for getting with 2008.
Then again, you have guys like GNU founder Richard Stallman and Oracle’s Larry Ellison who say cloud computing is “complete gibberish” and nothing but a slick marketing campaign for pricey third-party software. “Somebody is saying this is inevitable – and whenever you hear somebody saying that, it’s very likely to be a set of businesses campaigning to make it true,” Stallman told UK’s Guardian. Wait. Are you telling me the AICPA would engage in such shifty behavior just to make a few bucks?!
With all the talk lately about how small businesses are vital to job creation, turns out it’s a relatively small number of high-growth entrepreneurial firms creating much of that employment. And, now, there’s pending legislation, pushed heavily by venture capitalists, that could encourage the growth of such companies.
First, about those high-flying startups. According to recent research from the Ewing Marion Kauffman Foundation, fast-growing relatively young firms generate about 10 percent of all new jobs in any given year. That includes what the study calls “gazelle” firms–enterprises three to five years old. And, these ventures create all those jobs even though they’re less than 1 percent of all companies. The average firm in the top 1 percent contributes 88 jobs per year; most end up producing between 20 and 249 employees. The average firm in the economy as a whole adds two or three net new jobs each year.
Of course, these findings have important implications for government policy and what types of small business it should focus on. Among other recommendations, the study urges the passage of legislation just introduced in the Senate, informally known as the “Startup Visa Act.” Sponsored by Senators John Kerry and Richard Lugar, the bill would address the problem facing many foreign entrepreneurial wannabes who can’t get a visa to come here and start a company.
To that end, it would create a new visa for such entrepreneurs who are sponsored by a US venture capital firm or angel making an investment of at least $100,000 in an equity financing of no less than $250,000. The legislation would modify the EB-5 visa program; that requires recipients to invest at least $500,000 in a US company and create no fewer than 10 jobs.
The bill is the product of heavy lobbying by such investors as Brad Feld, who is with the venture capital firm the Foundry Group. Of course, they have their own business reasons to push this legislation but there seems to be sound research to back it up.
GC reader Geoff Devereaux pointed us to something that we were honestly surprised to see, a “glowing review” for the psychedelic-inspired online accounting application, Brightbook.
Accounting Web UK interviewed the two designers, James Henderson and “his colleague Warwick.” If Warwick isn’t a acid-dropping Dead Head name, we don’t know what is.
Anyhoo, the AWUK asks the question that you would expect from an accounting pub, “how will Brightbooks make its money?” To which, Hedernson responds, “this isn’t about the money man, it’s about sharing the love of accounting software for free.”
More or less, that’s what he said. Free software that does what small business owners need it to do. What WE still want to know is WTF is up with the T-Rex in the party hat? What is he celebrating? Or is it something that the partygoers are seeing?? Speaking of the rager, why isn’t the egghead guy partying with the hula-hoop girl or topless chick (or the dudes, whatever his preference)? Has he not dropped yet? All important questions.
Brightbook: Free web accounting software [AccountingWEB UK]
With all the news about President Obama’s proposals to increase bank lending to small business, there’s one obvious question that needs to be addressed: Why not have the Small Business Administration take a more aggressive role? Why not allow the agency to lend directly to small businesses?
The issue came up at a recent hearing held by the House Financial Services and Small Business Committees.
Turns out, the Small Business Act creating the SBA allows the agency to do direct financing of companies, as the You’re the Boss blog recently pointed out. And through at least the 1980’s, they did so, lending to companies rejected by banks.
Plus, in the past year, the Senate has introduced legislation to help the SBA make direct loans. And the House has passed two bills creating programs aimed at direct lending. That legislation would create a program which would exist only in a recession, through which the SBA would help small businesses fill out loan applications. Then, if no bank were willing to lend, the agency would step in.
But the Obama administration is against any and all such proposals. The reasons: 1) The agency doesn’t have the staff or the resources; 2) It would take as long as a year to get such a program up and running; 3) Administrative costs would be in the billions of dollars; and 4) Historically, SBA direct loans have had higher cumulative loss rates than other SBA-backed loans.
Those, in fact, are pretty convincing arguments.
It might just be that, while it sounds good on paper to give the SBA the power to lend directly, the reality is very different. Sure, drastic action is needed to increase bank lending. But this one might be thoroughly impractical.
The bottom line: Ultimately, it’s bankers who probably are more qualified than anyone at the SBA to make these decisions. In a time of scarce government resources and a need for fast action, the most efficient approach is for the SBA to do whatever it can to encourage banks to lend.
Of course, whether the steps proposed by the Obama administration are likely to do that is the $64,000 question.