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Small Business Banking 4/8 Mercator Banks are realizing small businesses are a rich source of deposits & profits for banks. They represent the largest business segment with 27m businesses. This report explores ways for banks to attract & protect their small business customers from aggressive banks & nonbank predators? Small business market as defined by the SBA is businesses with less than 500 employees. A company with 5 employees looks & acts differently than a 400 employee company. To be successful in this space banks need to look closer. For example, Small Office & Home Office (SOHO) sometimes fall under the bank’s radar lost in retail banking. SOHO make up the vast majority of small business total, 19m SOHO compared to 8m small businesses. SOHO businesses can be small doctor or dentist offices, an independent CPA, consultants, architects, or start-up companies just getting going. These businesses are very important to banks because their banking relationships haven’t matured. Identifying SOHO businesses is a key challenge since most operate with regular checking accounts. SOHO’s can be serviced at local bank branches. Banks should have the advantage in capturing the rest of their relationship. But like traditional small businesses SOHO’s are interested in reliable services that save time & money. As a small business matures they require more financial services making it difficult for them to leave the bank. Industry segmentation enables banks to identify & concentrate on small business niche markets that provide the greatest paycheck. Some banks are customizing banking solutions for small business niche market segments. For example elective surgery can be very expensive. One way banks can help is by offering doctors a patient financing solution guaranteeing their payment & allows the patient a choice of payment plans, spreading payments over a period of time, 12 - 24 months. This makes the procedure affordable & doctors do not have to finance their patients. The small business community is worried that the mortgage crisis will spill over to small business financing making it harder for their local banks to offer credit lines. For growing small businesses this means looking at alternative financing. Small business will be attracted to banking services like payroll help small business reduce operation costs by freeing up resources. Insurance products & affordable health benefits for employees help businesses during tight credit times. Sarsha Adrian, Mercator comments; ‘the small business market is very diverse, to help understand small business this report breaks down the small business market by SOHO & businesses over 5 employees. Retiring baby boomers starting their second careers look to their banks for advice & services. Small medical or dental practices are another example of SOHO businesses that can develop into deposit relationships.’