Micro businesses are most likely to report satisfaction with their bank, according to a new report, contradicting claims that start-ups are overlooked by the banking sector.
The report, compiled by Ian Freedman of consultancy firm Non Executive Management, is based on a survey of 400 SME owners and/or managers.
It reveals micro businesses are the most likely to report satisfaction with their bank, followed by corporates, while small businesses – with $5-10 million in revenue – are the most dissatisfied.
The report states that micro businesses are typically more satisfied due to an “inherent lack of financial sophistication”.
“Because governments so actively encourage entrepreneurs to start and grow firms, the requirements for business start-ups are minimal,” the report says.
“There are no legal requirements for nascent businesspeople to have any management skills whatsoever. In reality, entrepreneurs only require the desire to be in business and a willingness to start trading in order to start operating a business.”
“Management skills, which are critical to small firm survival, are overlooked to the extent that little or nothing is laid down regarding either the manner in which financial information should be recorded within a small firm or how is it used to inform business decisions.”
The entrepreneur’s inherent lack of financial sophistication is often based upon:
- A lack of financial understanding or education.
- A lack of knowledge of the financial products available to them.
- Access to a limited range of suitable products.
- The absence of appropriate advice, financial and otherwise.
“Such limitations may result in the acceptance of flawed financial offerings,” the report says.
However, more established small businesses – who come to depend on their banks more and more – believe they are not readily available, do not offer sound advice, and are only interested in selling products.
The survey reveals that only a third of SMEs believe their business banker is readily available, which is in stark contrast to the views held by the banks; between 87% and 92% of business bankers believe they are readily available.
Alarmingly, 2.2% of customers say their bank offers sound and constructive banking advice, and just 4% agree their bank understands the key drivers of growth for their business and tailors products accordingly. On both measures, a majority of business bankers agreed.
Thirty-one percent of SME customers agree their bank is interested in a long-term relationship, versus business bankers of between 80% and 93%.
Interestingly, there is a gender gap too – women were more likely to report dissatisfaction then men, with no women prepared to say their bank offered sound advice or tailored products appropriately.
Freedman told SmartCompany the banks need to change the way they treat small businesses.
“One of the great problems that customers have is product flogging; it really irritates people,” Freeman says.
The report states that while banks tend to be income-focused, this clashes with the entrepreneurial nature of small firms, which are outcome-focused.
“This variation in focus demonstrates a fractured connection; a dichotomous relationship with a clear need for more highly developed levels of understanding by both parties,” the report says.
“However, banks, due to their structure, size and powerbase, are better positioned to take advantage of the existing dichotomy.”