Remember when small business banking was simpler? When relationships were built on handshakes and your biggest competition was the bank down the street? Those days might be gone, but here’s the good news: today’s challenges are creating profitable opportunities for small business bankers who know how to play the long game by building referral relationships.

The new banking normal

Let’s face it – the banking competitive landscape has changed. Your small business clients are savvier shoppers, increasingly looking for credit options online rather than limiting themselves to local institutions. Meanwhile, larger financial services providers are not only offering eye-catching rates, but can also provide more loan products than many banks can offer. Add to this the industry-wide challenges of declining credit quality and tightening credit policies, and we’re navigating a complex new landscape where it keeps getting harder to retain customers.

Regardless as to whether you work at a large bank or smaller institution, the fundamental importance of strong customer relationships has remained the same. By establishing a referral partnership with a lender equipped to serve customers who fall outside of your bank’s credit criteria, you can create a rising tide that lifts all boats in your community—including your bank’s.

Referral partnerships: the smart banker’s secret weapon

Think about this: industry data shows it costs 7-8 times more to acquire a new customer than to keep an existing one. On the other hand, saying “yes” to a request that’s on the margins of your risk appetite without the right credit enhancements incurs a larger cost in the form of losses. So, how can small business bankers maintain deposit relationships and cross-selling opportunities with a customer who comes to them with a loan request that falls outside of their bank’s criteria? This is where having a referral partnership with a non-depository financial organization becomes your secret weapon to client retention and customer lifetime value.

Picture this real success story: A startup x-ray tube manufacturer didn’t meet their bank’s loan requirements, which demand at least three years of historical performance and supporting financial statements. However, the deal was otherwise strong as the owner had significant liquid assets, deep industry experience, equity in their home, and active contracts. Through the bank’s referral partnership with Grow America, this business was approved for funding and became a success story for the bank instead of a rejection letter.  While Grow America provided the loan, the bank kept the customer relationship and is benefitting from the deposit relationship, including loan proceeds of several hundred thousand dollars.

Building your partnership team

The key to building partnerships is choosing referral partners with products and requirements that complement, rather than compete with, those offered by your bank. Think of it like building a team—each partner on your team fills a critical gap that allows you to provide clients with solutions beyond your institution’s product mix and/or credit box. Instead of declining a loan request that’s just outside of your strike zone and potentially losing relationships to competitors, you become the trusted advisor who can meet diverse client needs through an established network of reliable partners. The best partnerships are built on:

• A proven track record of successful collaboration
• Solutions that fill gaps without overlap or competition
• A shared commitment to customer service and customer relationship building
• The perfect blend of high-tech efficiency and high-touch service

If you’re ready to start building your referral partnership team, begin by networking with other financial institutions that serve your area to learn about their requirements, processes, and perspectives on customer service and relationships. Explore relationships with the following types of organizations:

• Non-depository SBA lenders and Community Development Financial Institutions (CDFIs), such as Grow America
• Small Business Development Centers (SBDCs)
• Local Chambers of Commerce

We also encourage you to explore a relationship with our team at Grow America. We’re trusted by banks and bankers around the U.S. to serve their customers who fall short of their institution’s criteria. As a nonprofit, mission-focused lender, we have access to loan programs with flexible criteria, lower down payments and longer terms—factors that make it possible for us to say “yes” to a broader range of businesses. Our “sweet spot” is lending to small business borrowers that fall just outside of traditional banking criteria. 

Conclusion

Through smart referral partnerships, you can transform every customer interaction into an opportunity to strengthen relationships, even when the immediate answer isn’t what they hoped for. If you’re ready to add another partner to your relationship-building team, get in touch using the form below to chat about how Grow America can complement your institution’s loan product offerings.