Small Business Bank Research Articles

TRUST AND ECONOMIC SATISFACTION AS ANTECEDENTS, AND LOYALTY AS OUTCOME, OF SMALL BUSINESS CUSTOMERS’ COOPERATION AND COORDINATION IN BANKING RELATIONSHIPS

Business success is determined by the ability to establish stable relationships that result in the retention of loyal customers. Extant literature on business-to-business relationships highlights trust, satisfaction, cooperation, and coordination, regarded as important constructs comprising relationship quality (RQ), as key drivers for ensuring loyalty. However, the interaction between these RQ constructs remain unclear. This study accordingly investigates a framework where trust and economic satisfaction are antecedents of cooperation and coordination, which ultimately influence small business customers’ loyalty towards their banks. The sample comprised 269 small businesses operating in South Africa. The empirical findings of this study show that trust and economic satisfaction within banking relationships are significant predictors of cooperation and coordination, which in turn positively influences small business customers’ loyalty towards their banks. This study contributes to existing literature by incorporating a small business banking perspective investigating the interrelatedness of selected constructs on establishing stable relationship and customer loyalty.

This time is really different: The multiplier effect of the Paycheck Protection Program (PPP) on small business bank loans.

In response to the COVID-19 crisis, the U.S. government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020, creating the Paycheck Protection Program (PPP), among others, to aid small businesses and their employees. Most PPP loans were administered by commercial banks in return for fees, and the banks bore little monitoring costs or risks, since PPP loans were forgivable by the government. I analyze if PPP loans of up to $1 million were net substitutes or complements for conventional small business loans of the same size for the PPP-issuing banks. The $1 million upper bound roughly corresponds to credits to the smallest firms that are often financially constrained. Using Call Report data through 2020:Q4, I find significant net complementarities. An additional dollar of PPP credit of up to $1 million had multiplier effects on conventional loans to the smallest firms of about an extra dollar.

Using Small Business Banking Data for Explainable Credit Risk Scoring

Machine learning applied to financial transaction records can predict how likely a small business is to repay a loan. For this purpose we compared a traditional scorecard credit risk model against various machine learning models and found that XGBoost with monotonic constraints outperformed scorecard model by 7% in K-S statistic. To deploy such a machine learning model in production for loan application risk scoring it must comply with lending industry regulations that require lenders to provide understandable and specific reasons for credit decisions. Thus we also developed a loan decision explanation technique based on the ideas of WoE and SHAP. Our research was carried out using a historical dataset of tens of thousands of loans and millions of associated financial transactions. The credit risk scoring model based on XGBoost with monotonic constraints and SHAP explanations described in this paper have been deployed by QuickBooks Capital to assess incoming loan applications since July 2019.

Do Community Banks Contribute to International Trade? Evidence from U.S. Small Business Banking

We investigate if international trade financing credits provided by local community banks in a given state to small-and medium-size enterprises (SMEs) contribute to the state-level volume of international trade. The results show that aggregate commercial letters of credit (CLCs) issued by U.S. community banks have an economically and statistically significant explanatory power in describing local, state-level international trade. Community banks’ contribution to state-level international volume through trade credits to opaque SMEs manifests itself in manufacturing industry where bank dependency for SMEs is most pronounced. While we are mainly interested in the total volume of international trade (exports plus imports), we find that our results are predominantly driven by imports. Finally, the findings show that the positive association of CLCs issued by community banks with state-level international trade significantly attenuated during the financial crisis. Overall, we conclude that albeit constituting only 10% to 15% of all CLCs in the U.S. banking industry, CLCs issued by community banks play a nontrivial role for SMEs’ access to international markets, thereby positively affecting state-level international trade volume.

Capacidades de internet banking e desempenho das pequenas empresas: o valor de negócio da TI na perspectiva de capacidades externas

The purpose of this research is to identify the extent to which Internet Banking Capabilities are related to the performance of small business (bank customers) at the processes and firm levels. As a research method, a survey with small businesses which use internet banking has been conducted. For data analysis, we used Structural Equation Modeling estimated with Partial Least Squares (PLS). The results indicate the direct impact of Internet Banking Capabilities on process performance, which sequentially impacts the performance at the firm level. On the other hand, there is no direct impact of Internet Banking Capabilities on firm performance. Limitations and research opportunities are included in the conclusions. Keywords: IT value, Internet Banking Capabilities, process performance, firm performance.

Credit Rationing in Small Business Bank Relationships

I study credit rationing in small firm bank relationships by using a unique data set of matched loan applications and contracts. I establish the degree of credit rationing by relating a firm’s requested loan amount to the bank’s granted amount. In line with theoretical predictions, credit rationing is higher for opaque than transparent firms at the beginning of their bank relationships and decreases over time for both. After testing for several alternative explanations, the results suggest that information and incentive problems explain the observed credit rationing and its dynamics.

Perspectives on the Potential for Social Media to Improve Communication in Small Business–Bank Relationships

Relationships with the small business sector have traditionally been largely neglected by banking institutions. However, as a result of recent turmoil in the world's economy and the ongoing impact of the recession, banks find themselves in a quandary about how best to support those within the small firm sector in times of tight credit. With increasing regulation, market fragmentation and increased competition, banks face real challenges to improve communication and establish profitable and long-term relationships with their small firm clients. Through conceptual modelling and empirical research, this paper explores the small business– bank relationship and examines the extent to which social media may facilitate more effective communication in that relationship. A qualitative research methodology uncovers perceptions of both senior bank executives and small firm owner-managers with respect to the perceived value social media can bring to communication within the small firm–bank relationship. The findings indicate that bankers saw little merit in any communication opportunities afforded by social media, while the owner-managers could see great value in such new media channels for improved communication. Through theoretical modelling, the differences in perception were classified at the levels of context, content and competency. It is concluded that, while social media could add value to the small firm–bank relationship, the medium would be most effective when used in a secondary capacity to personal face-to-face relationship building.

Do Credit Market Shocks Affect the Real Economy? Quasi-Experimental Evidence from the Great Recession and 'Normal' Economic Times

This paper uses comprehensive data on bank lending and establishment-level outcomes from 1997-2011 to test whether changes in small business bank lending affect the real economy. The shift-share style research design predicts county-level lending shocks using variation in pre-existing bank market shares and estimated bank supply-shifts. Counties with negative predicted supply shocks experienced declines in small business loan originations throughout the entire period, indicating that it is costly for these businesses to find new lenders. Using confidential microdata from the Longitudinal Business Database, we find the predicted lending shocks led to statistically significant, but economically small, declines in both small firm and overall employment during the Great Recession, but did not affect employment during the 1997-2007 period. Overall, this paper’s evidence fails to support the hypothesis that the small business lending channel is an important determinant of economic activity.

Small Business Financing and Bank Performance: Empirical Study of Indonesian Public Banks

The aim of this paper is to investigate small businesses financing in Indonesia. Many programs in financing small businesses have been undertaken through some collaboration between banks, government, other related parties. The study employed descriptive and inferential statistics to explain the data characteristics of small businesses financing from Indonesia public banks and tried to determine whether those financing had the association with and influenced the bank performance for the period of 2004-2007. The data were collected from Bank Indonesia and Indonesian Capital Market.The result of the study showed that the small business financing significantly influenced the bank performance in Indonesia especially within the study period.

Cost of small business banking: a New Zealand study

Cost of small business banking: a New Zealand study

Cost of small business banking: a New Zealand study

The research reported in this article develops a model for assessing the cost of banking services faced by small businesses. The lack of price competition in the provision of small business banking services combined with limited transparency concerning actual fee levels prevents small businesses from readily estimating likely fee levels. Prior research and government reports note the difficulties faced by small business in relation to banking services and this research contributes to an understanding of the potential dead weight losses incurred resulting from poor signalling and information asymmetry and potentially a deficient public policy framework.

TCF Financial Corp.

AbstractCommercial Banking (MIC: SIC: 6021 NAIC: 522110)TCF Financial is a financial holding company. Co.'s principal subsidiaries are TCF National Bank and TCF National Bank Arizona. Co.'s core businesses include retail banking; commercial banking; small business banking; consumer lending; leasing and equipment finance; and investments and insurance services. As of Dec 31 2007, Co. had 453 retail banking branches, consisting of 194 traditional branches, 244 supermarket branches and 15 campus branches, with 109 branches located in Minnesota, 202 in Illinois, 56 in Michigan, 46 in Colorado, 31 in Wisconsin, five in Indiana and four in Arizona. At such date, Co. had total assets of $15.98 billion and total deposits of $9.58 billion.

Bank of America Corp.

AbstractCommercial Banking (MIC: SIC: 6021 NAIC: 522110)Bank of America is a bank holding company and a financial holding company. Through its banking subsidiaries and various nonbanking subsidiaries throughout the U.S. and in selected international markets, Co. provides a range of banking and nonbanking financial services and products through three business segments: Global Consumer and Small Business Banking, Global Corporate and Investment Banking, and Global Wealth and Investment Management. As of Dec 31 2007, Co. operated in 32 states, the District of Columbia and more than 30 foreign countries. As of Dec 31 2007, Co. had total assets of $1.72 trillion and total deposits of $805.18 billion.

Comerica, Inc.

AbstractCommercial Banking (MIC: SIC: 6021 NAIC: 522110)Comerica is a financial services company. Co.'s segments include: Business Bank, comprised of the middle market, commercial real estate, national dealer services, international finance, global corporate, leasing, financial services, and technology and life sciences businesses; Retail Bank, which includes small business banking and personal financial services; Wealth & Institutional Management, which provides fiduciary services, private banking, retirement services, investment management and advisory services, investment banking and discount securities brokerage services; and a Finance Division. At Dec 31 2007, Co. had total assets of $62.33 billion, and total deposits of $44.28 billion.

Bank of America Corp.

AbstractCommercial Banking (MIC: SIC: 6021 NAIC: 522110)Bank of America is a bank holding company and a financial holding company. Through its banking subsidiaries and various nonbanking subsidiaries throughout the U.S. and in selected international markets, Co. provides a range of banking and nonbanking financial services and products through three business segments: Global Consumer and Small Business Banking, Global Corporate and Investment Banking, and Global Wealth and Investment Management. As of Dec 31 2007, Co. operated in 32 states, the District of Columbia and more than 30 foreign countries. At Dec 31 2007, Co. had total assets of $1.72 trillion and total deposits of $805.20 billion.

TCF Financial Corp.

AbstractCommercial Banking (MIC: SIC: 6021 NAIC: 522110)TCF Financial is a financial holding company. Co.'s principal subsidiaries are TCF National Bank and TCF National Bank Arizona. Co.'s core businesses include retail banking; commercial banking; small business banking; consumer lending; leasing and equipment finance; and investments and insurance services. As of Dec 31 2007, Co. had 453 retail banking branches, consisting of 194 traditional branches, 244 supermarket branches and 15 campus branches, with 109 branches located in Minnesota, 202 in Illinois, 56 in Michigan, 46 in Colorado, 31 in Wisconsin, five in Indiana and four in Arizona. At such dated, Co. had total assets of $15.98 billion and total deposits of $9.58 billion.

Comerica, Inc.

AbstractCommercial Banking (MIC: SIC: 6021 NAIC: 522110)Comerica is a financial services company. Co.'s segments include: Business Bank, comprised of the middle market, commercial real estate, national dealer services, international finance, global corporate, leasing, financial services, and technology and life sciences businesses; Retail Bank, which includes small business banking and personal financial services; Wealth & Institutional Management, which provides fiduciary services, private banking, retirement services, investment management and advisory services, investment banking and discount securities brokerage services; and a Finance Division. At Dec 31 2007, Co. had total assets of $62.33 billion, and total deposits of $44.28 billion.

TCF Financial Corp.

AbstractCommercial Banking (MIC: 8.1 SIC: 6021 NAIC: 522110)TCF Financial is a financial holding company. Co.'s principal subsidiaries are TCF National Bank and TCF National Bank Arizona. Co.'s core businesses include retail banking; commercial banking; small business banking; consumer lending; leasing and equipment finance; and investments and insurance services. As of Dec 31 2007, Co. had 453 retail banking branches, consisting of 194 traditional branches, 244 supermarket branches and 15 campus branches, with 109 branches located in Minnesota, 202 in Illinois, 56 in Michigan, 46 in Colorado, 31 in Wisconsin, five in Indiana and four in Arizona. At such dated, Co. had total assets of $15.98 billion and total deposits of $9.58 billion.

Bank of America Corp.

AbstractCommercial Banking (MIC: 8.1 SIC: 6021 NAIC: 522110)Bank of America is a bank holding company and a financial holding company. Through its banking subsidiaries and various nonbanking subsidiaries throughout the U.S. and in selected international markets, Co. provides a range of banking and nonbanking financial services and products through three business segments: Global Consumer and Small Business Banking, Global Corporate and Investment Banking, and Global Wealth and Investment Management. As of Dec 31 2007, Co. operated in 32 states, the District of Columbia and more than 30 foreign countries. At Dec 31 2007, Co. had total assets of $1.72 trillion and total deposits of $805.20 billion.

Firm Risk and Collateralized Asset Choice in Small Business Bank Lending: Theory and Evidence

Data show that collateral is ubiquitous in small business (bank-sourced) loan financing. The asset used as collateral can be either a business or a personal asset. An 'incomplete financial contracting' model shows that the use of a personal asset as collateral can be either increasing or decreasing in firm risk. The second part of this prediction is the opposite of that for collateral use more generally (that is, ignoring type of asset). The prediction is supported when tested against data on small business financing. The data also weakly support the model's further predictions that the likelihood of the use of a personal asset as collateral is independent of both firm size and loan size.