We regularly hear about small business owners being powerless when it comes to dealing with banks but findings from the latest Scottish Pacific SME Growth Index highlight opportunities for SMEs to take greater control of their banking destiny.
One of the report’s most telling findings was that only one in five small business owners review their lending requirements on a regular basis and one in two have not reviewed their primary bank relationship for some years. Further, 40%are seemingly comfortable allocating all of their credit facilities to their main relationship bank.
The report, which surveyed over 1200 small businesses, suggests SMEs don’t shop around for banking services either because they feel they are being looked after by their primary relationship bank or they are apathetic about changing. No doubt many are satisfied with their bank whilst others who may be less satisfied don’t bother looking around because they think banks are all pretty much the same anyway.
Another reason why the majority of SMEs don’t regularly review their banking relationship is that they just don’t have the time. And if they are not sure how to go about the process, its even less likely they will find the time needed for a review.
These businesses are missing out because generally you will get a better deal from periodically shopping around than simply trusting the bank to do the right thing. The SMEs most at risk of not getting the best deal are the passive, longer serving customers that place a value on loyalty and assume their bank does too.
The report highlights the need for small business owners to be able to access quality banking advice.Nearly half prefer to handle the task of reviewing their banking arrangements themselves in preference to external advice. Banking is a specialist area and few small business owners possess the knowledge and experience necessary to ensure they are able to put in place the optimal banking arrangements for their business. This means many remain unaware of the products and services offered by alternative bank and non-bank providers. There is a clear need for better education and advice for the largest business segment employing the highest number of Australians nationally.
The report reveals that only 17% of small business owners look to their accountant for this advice. This highlights the opportunity for accountants to enhance their trusted advisor status by providing this support.
Similarly, it may come as a surprise that only 12% of SMEs seek banking advice from a broker. It seems the small business owners who do want help are bypassing traditional advisors and are increasingly looking for ideas and solutions from trading partners and the internet.
The report reveals the percentage of small business owners willing to borrow outside their main banking relationship has doubled in the past year from around 10% to 20%. This confirms the growing interest in and knowledge of alternative financing options albeit from a relatively low base.
Four tips to take control of your banking destiny
1. Review your banking at least every two to three years.
This will ensure you get the deal you deserve and in the unlikely event that a review fails to produce a better outcome at least you will have gained the peace of mind that you are getting the best possible arrangement. And remember, the best time to review your banking is when you don’t have a new need so the process can be undertaken without having to worry about “will we get the money or not?”
2. Get quality advice.
If you are not getting quality advice from your accountant or broker, think about making a change. But don’t confine yourself just to accountants and brokers, other parties including specialist banking advisors, industry bodies and trade associations can also help.
3. Keep up to date with new developments.
Make it your business to learn about new products and suppliers. There are a number of new players entering the SME lending space including marketplace lenders who leverage technology to reduce the cost of finance. And whilst it requires time and effort to keep abreast of developments, this could well prove to be a worthwhile investment.
4. Look to spread your banking business around where you can.
Whilst many SMEs are content to remain with their long-term sole lender, 30% indicated a willingness to share facilities between two main lenders or a mix of bank and non-bank specialist providers. It takes commitment to develop and maintain multiple relationships and for some SMEs it just does not make sense but at least explore this option to see if it works for you.
Neil Slonim is a business banking advisor and commentator and the founder of theBankDoctor.org.