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Small & Medium-Sized (SMB) Business Banking: Big Opportunity?

Earnix Team

March 22, 2022

  • Transformation
“Banks haven’t always been enthusiastic about working with small businesses. These enterprises are small in scale, loan values tend to be low and the failure rate is comparatively high, so for many bankers, they didn’t seem worth the trouble.”

That assessment, by Terry Badger, CFA, managing editor of the non-profit Bank Administration Institute (BAI) summarizes the conundrum bankers face in deciding how to approach the small and medium enterprise (SME) or small and medium business (SMB) market. Or not.

In its recently-published Executive Report on the segment, BAI catalogs the reasons lenders should take this market segment seriously, as well as the challenges they need to overcome to take advantage of this growing market.

In this blog post, we’ll look at both sides of the argument, as well as provide some insights into how Earnix can help you tackle it successfully.

On the Plus Side: A Big SME Banking Opportunity

The SME market comprises the largest segment of the US economy, and has grown during the COVID-19 pandemic, as many laid-off workers decided to go it alone and others felt that starting or joining a small business could liberate them from big-company life, long commutes, and cubicle confinement.

Here are just a few of the stats that support the fact that this market is hard to ignore, according to the Small Business Administration (SBA):
  • There are 32.5 million small businesses (defined as those with fewer than 500 employees) in the US today. This means that small businesses comprise 99.9% of all businesses in the country.
  • Small businesses account for 44 percent of U.S. economic activity.
  • Those businesses employ 61.2 million people, or 46.8% of all US workers, and generate nearly 40% of the nation’s payroll.
  • Although the stereotype of the typical small business is that it’s local, in 2019 small businesses exported $459.6 billion, nearly one-third of the country’s total exports.
The bottom line: The market for SME financial products and services is estimated to have a potential of some $370 billion by Cornerstone Advisors.

On the Minus Side:  Many Significant Challenges


For every encouraging statistic about the SME market, there seems to be one that is equally cautionary. 

According to the SBA, while small businesses are created at a high rate, and account for the creation of many new jobs, those businesses are also shuttered at a high rate, and shed jobs prolifically as well.  
  • Even prior to the pandemic, in the period from March 2019 to March 2020, small businesses accounted for 909,808 openings and 843,229 closings, for a net gain of only 66,579 businesses.
  • During the pandemic, many small business segments that relied on person-to-person contact (food and beverage, travel, arts and education, healthcare, etc.) saw their revenue decline precipitously, especially in early- to mid-2020. For example, according to the SBA, up to 84% of restaurants saw major impacts to their operations early in the pandemic.
  • In the first year of the pandemic, 10% of all restaurants closed permanently, with many more closing at least temporarily due to cash flow issues, worker shortages, and employees missing work due to COVID infections.
  • Even in “normal” times, the US Bureau of Labor Statistics reports that 20% of new businesses fail in the first year, with the SBA reporting that one-third fail within two years, and only 50% make it past 5 years. The most common failure modes are unpredictable cash flow and financial management issues.

A Demanding Market as Well


Most banks are constructed around two distinct markets – commercial and retail. Small-business banking seems to fall into a “grey zone” between the two – too small for the commercial lending software team, and too big for retail banking products and services to meet SME needs. 

That’s why less than half of small business owners think their banks understand their needs, and roughly one in seven are looking to find new financial management tools and/or suppliers, including non-traditional banking organizations and fintechs. 

Small businesses are dominated by millennials, now the largest segment of the US population, and one that has “grown up digital”. In other blog posts we’ve discussed why these “digital natives” are looking for, but seldom finding, a compelling retail customer experience (CX) from their banks. 

When it comes to their small business needs, these demanding customers are looking not just for deposit accounts and loans, they are searching for a broad array of other financial and risk management solutions, that can be tied to traditional bank-supplied products and services. 

The bank that can deliver these tools, along with tailored SMB services and support, stands to benefit from that $370 billion opportunity, and can build a sustainable competitive position. 

How Earnix Can Help with SME Banking 

Taking the plunge into the SME market requires a technology solution that is agile, delivers a compelling customer experience (CX), is quick to implement, and provides outstanding return on investment (ROI). 

Here’s what Earnix brings to that equation: 
  • From a lending standpoint, Earnix employs analytics built around artificial intelligence (AI) and machine learning (ML), which speeds decisioning and adapts more readily to changing conditions in the market.
  • Those analytics also drive a strong CX by allowing you to personalize offers and experiences, satisfying the needs of those digital-savvy millennial small business owners and operators.
  • A cloud-native, SaaS-deployed solution that can be implemented in weeks or months, rather than years, leading to faster time to benefit. Using a SaaS banking software also means that an Earnix-based solution scales smoothly as you grow, with no need for lengthy procurement and implementation processes.
  • With its API-driven architecture, you can connect your SME tools with that of business partners, and provide a new set of capabilities to rival that of your fintech competitors. For example, you can tightly integrate receivables and other facilities that small businesses are looking for into a comprehensive small business offering.
  • A single, comprehensive, enterprise-wide technology solution that ties together all the functions of the bank, and not only delivers the most compelling customer experience for SMEs, but also better governance and reduced risk, key to successfully tapping this volatile market.
  • An agile and flexible solution that seamlessly aligns price and risk, while continuously monitoring and tracking changing market conditions.


The SME market represents a huge opportunity, but also one with inherent risks. 

To win, banks must provide a customer experience comparable to their best retail capabilities, such as fast lending decisioning, banking personalization, and flexibility, combined with commercial-strength capabilities such as broad application integration and strong governance and risk management. 

Time to get to work. 

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Earnix Team