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• W880818931 abstract "This paper presents the results from two recent surveys of the membership of the National Federation of Independent in which the responding firms identified the importance of various non-price attributes of their and then rated their major bank performance on these attributes. The analysis shows that banks do best in providing the non-personal characteristics desired in a relationship, but have room for improvement on the dimensions involving personal contact. The results also show that banks in rural areas and those in unit states have a comparative advantage over urban banks and banks in statewide branching state.s in providing the non-price dimensions involving personal contact, e.g., knowledge of a firm's business. Small Evaluates Its Relationship With Commercial Banks Small businesses, unlike large ones, have few alternatives to the commercial community for obtaining their required financing. Recent surveys of small business showed that commercial banks provided over 90 percent of the short-term (under 12 month maturity) and almost 70 percent of the long-term (over 60 month maturity) financing for the firms sampled. Banks are thus an important catalyst for a sector of the economy that employs nearly 50 percent of all workers, is recognized as a significant source of new jobs, and produces about half of our Gross National Product.! Even though small businesses are captive to the commercial community, they may represent a potentially profitable market that has yet to be fully exploited. Why? Because small business has a genuine interest in relationship banking where price considerations are less important than, say, reliability as a source of credit or the provision of helpful business suggestions.2 In an era where extreme competition from loan production offices and foreign branches have squeezed profit margins on lending to national firms,the small business market provides an opportunity for banks to maintain higher margins if they can meet the important non-price needs of these firms. This paper presents the results from two recent surveys of the membership of the National Federation of Independent (NFIB), in which the responding ffrmsidentified the importance of various non-price characteristics to their desired relationship, and then rated their major bank performance ·on these characteristics. The surveys, conducted in April 1980 and April 1982, were sent to a random sample of about 8000 firms with 2657 responding in 1980 and 2349 in 1982. About half of the firms had gross sales under $350; 000-per year, employed less than five persons; and had been in business over 10 years. Over half considered . themselves to be frequent 2 borrowers, i.e., borrowed at least once per year. Of those that had borrowed, under one half reported loans under $20,000, while 10 percent reported loans over $200,000. These data describing the sample are given in Table 1.3 The data on the desired characteristics in a and major bank performance on these characteristics are presented in Table 2. Small businesses first rated the importance of ten characteristics (see Table 1) in their desired from 1 (very important) to 4 (not important). Next they ranked their major bank's performance on these same characteristics from 1 (good) to 4 (not good). All of the characteristics (Table 1), with the exception of Offers the Cheapest Money, represented non-price aspects of a relationship, e.g. , Knows You and Your Business, Offers a Wide Range of Banking Services, and A Source of Credit. . The 1982 list of characteristics differed slightly from the 1980 list: Easy Access to Loan Officer was inserted in place of Knows Your Financial Needs. Rankings of Desired Characteristics The interest rate charged on a loan was not the most important aspect i-n a small business despite record high nominal and real rates at the time of the surveys. Knows You and Your Business was most frequently rated very important (67 percent in both surveys), followed by Reliable Source of (55 percent). ''Offers the Cheapest Money was the third most important characteristic in the desired relationship, rated very important by 50 percent of the firms. Those characteristics least frequently ·· reported as very important to the desired were Providing Helpful Suggestions and Comes to You with Ideas for Improving Bank Services. These ratings suggest that the aspect of the was viewed as less important than the continuity .and availability of . 3 credit. And, consulting was less important than the cost of credit. The rating results for desired characteristics in a could have important implications for small business lending programs. If small business values certain non-price aspects of the relationship, the opportunity exists for banks to shape profitable lending strategies for those that can best provide these services. Ratings of Performance Ratings of bank performance differed markedly from the ratings of desired characteristics in a relationship. Banks most frequently received ratings on accessibility (Convenient Location and Easy Access to a Loan Officer). Reliable Source of Credit,'' One Person Handles Credit Needs, Knows You and Your Business, and Offers a Wide Range of Banking Services also received performance ratings, although significantly· lower than accessibility.4 The two characteristics least frequently rated as very important to the (~ovides Helpful Suggestions and Offers Ideas to Improve Bank Service) were also least frequently rated good on performance. Performance was also analyzed by community size (urban versus rural locations) and by branching restrictions (statewide versus unit) to investigate the claim that more liberalized branching/holding company restrictions result in better service to the customer.S Many independent bankers (es-pecially those in rural areas) feel threatened by further deregulation because of their perceived inability to compete with larger banks that may enter their market with new branches or purchases of existing banks. Bankers in unit states may also see .a potential threat to their markets from large banks in statewide branching states. While these data do not address all the issues involved in the debate over . the effect of further bank deregulation on" @default.
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• W880818931 date "1983-01-01" @default.
• W880818931 modified "2023-09-24" @default.
• W880818931 title "Small Business Evaluates Its Relationship with Commercial Banks" @default.
• W880818931 hasPublicationYear "1983" @default.
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