Small Business - Banking Start-Up Term Paper

Length: 30 pages Sources: 25 Subject: Business Type: Term Paper Paper: #8891230 Related Topics: Loan, Banking, Intel Corporation, Money And Banking

Excerpt from Term Paper :

Video Tape and Disc Rental Rentals

Catalog/Mail Order


Health and Personal Care Stores


Table 2: Comparisons of Most Risky Small Business (, cited by Telberg, 2003)

An Engine of Economic Growth

More and more, Craig, Jackson and Thomson (2007) argue, policymakers perceive the small business sector "as a potential engine of economic growth. Policies to promote small businesses include tax relief, direct subsidies, and indirect subsidies through government lending programs." These authors stress that encouraging lending to small business purports the Small Business Administration's (SBA's) primary policy objective of the loan-guarantee program. In their study, Craig, Jackson and Thomson (2007) implement empirical research to focus on SBA-guaranteed lending, utilizing a panel data set of SBA-guaranteed loans, they assess whether SBA-guaranteed lending discernibly impacts local economic performance. Ultimately, these authors cautiously conclude that "There is a positive (although small) and significant relationship between the level of SBA-guaranteed lending in a local banking market and future per capita income growth." Cocheo (2006) posits small business lending at a number of banks in California, as in other states, constitutes "big" business. Stephen H. Wacknitz, president, CEO, and chairman of Temecula Valley Bancorp, a small bank located in Temecula, California, with just over $1 billion during 2005, which finished as the 16th-largest Small Business Administration lender in the U.S. during 2005, contends, "Much of the business comes down to people." (Ibid.) a big part of the banking equation in regard to small businesses, Wacknitz stresses, consistes of customer service quality. In addition, "hiiring and training people who can navigate the often complex SBA process makes that service better for borrowers." (Cocheo, 2006) a not too often noted "perk" small businesses contribute, according to Fuller (2003), is that they provide employment for individuals in society and also an alternative career choice for owners. "They are needed by citizens-as-consumers who demand customer service and choice that requires niche-oriented suppliers." (Ibid.) Whether he/she chooses to be an artisan, innovator, specialist, entrepreneur or family business owner, individuals may utilize small businesses as vehicles for their entrepreneurial activities in an economic context. (Fuller, 2003) Fuller (2003) presents the following questions and answers to relate concerns an individual may want to know about the future of small business.

How important to society are personal relationships in business transactions? Small business is personal. It is the result of personal relationships between stake holders. In a landscape where personal relationships take precedence over regulated contracts, small business will thrive.

How important to society is the personal commitment of business owners to the solution of its customers' problems and needs? Personal commitment transcends economic constraints. In a landscape where both buyer and seller recognise each other's real needs, the small business will thrive. Large businesses cannot do that.

For how long will consumers crave the brand rather than the personality of the individuals that create the service? The brand is the soul of corporate business. In a society that adopts the human spirit as the manifestation of good, rather than iconic symbols of constructed value, small business, as an embodiment of human spirit will thrive.

How important to society is the individual's personal control on their work and careers? An entrepreneurial approach is to commit to a socio-economic goal, in whatever landscape supports that commitment. Small businesses and small enterprises are often the result of that commitment.

Who will invest their savings directly in the activities of people they know, rather than in market valued institutional funds? Institutional funds can only operate with large sums, as so much is in the hands of so few. The small business will thrive in a landscape where the purpose of the use of money takes precedence over the financial return from the use of power.

Will societal regulation allow us the freedom to decide our own work and enable us to exchange our efforts in flexible ways? Unregulated economies lead to crime and monopoly, so forms of 'regulated freedom' are necessary.

When will monopolistic...


Small business landscapes are diverse. (Fuller, 2003) Financial Management

Along with stressing that smaller, community banks can increase profits by reducing operating cost, Valentine (2007) also emphasizes the value of ensuring customers' are met. "Few things are easy," she notes, "but it's clear from the success of several small and midsize banks that cash management -- and winning customers -- is worth the effort." (Valentine, 2007)

According to Jeff Dick, president and CEO of a Herndon, Virginia-based bank, because they offer customers extras, their bank successfully competes with the biggest and the best banks in the metro D.C. off area. Their sophisticated services include an automated escrow management, image-based lockbox, and remote deposit capture, along with traditional cash management services, including wire transfers and the capability to download banking transactions into accounting software. Bulk check deposit ATMs, another new tool being incorporated banking, permits consumers or businesses to simultaneously deposit up to 50 checks without having to fill out the deposit envelopes. Some pertinent advantages for small business owners include real-time access to deposited funds, after-hours convenience, and an accompanying imaged receipt of the checks customer deposits. (Valentine, 2007)

Currently, "fraud costs the banking industry up to $1.5 billion each year." (Valentine, 2007) as deposit envelopes are not necessary with the new bulk check deposit ATMs, fraud evolving from the use of empty deposit envelopes dissipates, and consequently and fraud costs for banks decrease. More savings are additionally realized as n addition, the cost of processing a deposit envelope transaction made through a regular ATM is reportedly $1.70, while it only cost $.40 to complete a bulk deposit ATM.

Sweep Account a sweep account is defined as: "A bank account that, at the close of each business day, automatically transfers amounts that exceeds (or falls short of) a certain level into a higher-interest earning account." ("Sweep Account," 2007) a bank's computers analyze a the customer's use of checkable deposits and then "sweeps" designated amounts into money market deposit accounts. This helps the customer receive the greatest amount of interest, while it also utilizes the minimum amount of personal intervention. Initially, sweep accounts were created to avert an old government regulation that prohibits banks from paying interest on commercial checking accounts. In his study, Scott (2006) "presents empirical evidence on the role loan officers play in facilitating small firm access to commercial bank loans." He notes that when and a bank's loan officers use soft information to influence their lending decisions not traditionally made on the basis of hard information then, loan officers' frequent turnover should be related to adverse effect on credit availability. Scott (2006) conducted surveys of U.S. small businesses, also members of the National Federation of Independent Business (NFIB), utilizing data from 1995 and 2001, to determine the role loan officers exert on small firm credit availability. One survey variable, a report of account manager turnover, served as a proxy for soft information production. Account manager turnover and proxies for hard information (e.g., banking relationship length), in conjunction with control variable "for firm risk characteristics (size, years in business) and market structure (merger activity, market size, and deposit concentration)," (Ibid.) were used to explain loan application outcome at commercial banks. Using data from the 1995 and 2001 Credit, Banks, and Small Business Surveys conducted by the NFIB, Scott (2006) collected data/information related to credit market experiences of a random sample of the NFIB's 600,000 members. During the 1995 survey, Scott (2006) initially mailed 18,000 questionnaires. For the second mailing, 3,642 completed questionnaires were available, a contributing to a 20% response rate after the second mailing period. For the 2001 survey, Scott (2006) mailed questionnaires to 12,500 firms. Responses retrieved from this an effort totaled 2,223 after two mailings; constituting an 18% response rate. From findings analyzed in his study effort, Scott (2006) conclude: "loan approvals based only on hard information could limit their [these firm's] ability to obtain credit. Soft information obtained by the loan officer is likely to increase credit availability, but there are instances where it may not (for example, the officer learns about internal control problems at the firm) and result in decreased credit availability." (Ibid.) Scott (2006) stresses that the relationship banking links with the loan officer's production of soft information as it does with the bank's accumulation of hard information. For small business owners, as well as branch managers, these results indicate:

clear understanding is mandatory of the costs and benefits of relationship banking.

For small firms, particularly those with few tangible assets and a short operating history

Not all community banks choose to be, or even could be, relationship lenders. (Scott, 2006)

Owners of small businesses with obscure information, according to Scott (2006), may benefit more doing business with banks which have a history of stability in loan officers and local decision-making. The earlier a small business chooses a locally owned,…

Sources Used in Documents:


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Cocheo, S. (2004). Turning a "Liability" into an Asset: As Market Rates Head Back Up, Banks Readjust Their Deposit Marketing. A Look at Changing Tactics in the Retail, Business, and Municipal Deposit Markets. ABA Banking Journal, 96(9), 34+. Retrieved November 12, 2007, from Questia database:
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Cocheo, S., Stucki, D., Harris, K., Kirk, a., & Salazar, F. (2003). Being Good Is Just the Beginning. ABA Banking Journal, 95(6), 35+. Retrieved November 12, 2007, from Questia database:
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Valentine, L. (2006). Remote Deposit Capture Hot Just Got Hotter: Contrary to What You May Have Heard, the Corporate Market for This Product Is Not All Locked Up -- and the Small Business Sector Is Largely Untapped. ABA Banking Journal, 98(3), 30+. Retrieved November 12, 2007, from Questia database:
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