Relationship lending: Are you making the best use of your CRM?

Relationships play a significant role throughout one’s life, from personal and family relationships to business and financial affiliations. Banking is no different.

by Joseph Lowe, Sageworks

Are you truly maximizing the benefits of your financial institution’s CRM? The ROI of a fully-integrated customer relationship manager (CRM) is no secret. A CRM offers a central record of customer engagements, efficient task management system and accountability of opportunities or assignments. However, streamlining the once time-consuming tasks with a CRM also impacts an often undervalued banking initiative: relationship banking.

Relationship banking refers to a bank’s ability to price a loan and analyze credit based on intangible reasons, such as the borrower’s socioeconomic impact on the community or reputation within the area.

Traditionally, community banks have led the charge in relationship banking, while large banks rely on a more model-based approach; however, that trend is beginning to shift as larger banks are dominating the small and mid-size bank business (SMB) lending market. A study by the Federal Reserve and the Conference of State Bank Supervisors states small business loans from community banks (banks with less than $10 billion in assets) fell by 2.2 percent in 2016 and large banks increased small business lending by around 5.1 percent from 2015 to 2016.

When questioned about what size banks are lending to small businesses in a Banking Exchange article, Robert Quarles, Federal Reserve vice-chairman for supervision, said small banks of less than $1 billion account for just 19 percent of loans, a significant shift from 60 percent just two decades ago.

There is no doubt this is in part due to relationship lending efforts by small banks. Community banks and credit unions include the adjective community for a reason; these institutions are heavily involved with local residents. Whether supporting a local nonprofit or providing financial relief to small businesses, they are deeply intertwined within the local economy and keep money flowing throughout areas that often have no other physical banking presence except those operated by community banks. That intertwining is often why community banks have begun to step away from relationship banking and focus on other factors, such as regulation. The common notion that the national or local economies’ wellbeing is heavily linked to small banks’ and credit unions’ performance is prevalent amongst financial professionals who weathered the storm of the Great Recession. Community banks did face hardship during large financial downturns such as the 2008 Recession and the Great Depression, however studies show local banks are not impacted as greatly by economic shifts due to increased financial diversification. Financial diversification refers to when finance institutions broaden lending outside of their market area or region, and small banks are reaching out for business. According to a study from the National Bureau of Economic Research, the distance between small businesses and their community banks increased from an average of just 16 miles in the 1970s to 68 miles in the 1990s. As community banks extend business to other small communities and diversify assets, they can begin to focus less on how the local economy will affect revenue generation and more on how their relationship lending efforts can resurge the local economy.

Along with advances in banking technology, such as a sufficient CRM, community banks and credit unions have the opportunity to gain back market share of small business lending and anchor themselves with relationship lending. Furthermore, a CRM allows lenders to focus less on the logistics and more on providing a unique experience for each borrower.


According to Salesforce, 64 percent of consumers expect companies to respond and interact with them in real time, which is often a difficult undertaking when lenders are tasked with credit analysis or other duties outside of the typical job title. Utilizing a CRM allows lenders to consistently stay up-to-date with notifications or reminders and reduce loan administration duties. Each bank has a unique loan decisioning process to approve a loan, and a sufficient CRM can adapt to that process and optimize through automation, providing more time for lenders to focus on the specific needs of each borrower and deliver a superior customer experience quickly.


A CRM provides lenders with a 360-degree view of the borrower and his or her global cash flow. Part of building a lending relationship is understanding the borrower’s unique circumstances, assets and third-parties involved in loan decisioning. If the borrower has rapport with the lender or institution, it’s easier to provide the borrower with better opportunities than the average customer.


Good community banks form relationships with borrowers, assess credit quality and win loans in a manner that doesn’t cost the financial institution substantial revenue. However, superior community banks form long-term relationships and trust with borrowers to not only better understand his or her financial history but secure long-term business and inevitably referrals and additional borrowers.

Offering a personalized, unique customer experience for each borrower is no longer a suggestion, but a necessity. As community banks attempt to regain footing in the SMB market, it’s important to understand that relationship banking equates to business development. In most cases, the longstanding relationships turn out to be the most profitable lending relationships that banks can experience.

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