Do Banks and SMBs Even Need a Relationship?

Small businesses have told us what that think is broken about their relationship with big financial service providers. But we ask: “Does it even need to be fixed?”

“I’ve come to the conclusion that big banks + SMBs are not a good fit.” – Cargo Panelist

We originally set out to write the mindsets and behaviors of small business owners and buyers as it relates to financial service providers, pulling from our latest Small Business research study, Heads Up. But you can consume that here. It’s filled with interesting insights, observations, and implications to big brands, so we encourage you to check it out.

But, like a lot of small businesses, I’ve decided to pivot and instead build off a simple question: Do big banks and small businesses really need a “relationship” going forward? Based on some of the comments from our small business panel, I’m not so sure trying to fix or build a relationship is needed – or even possible.

What small businesses want are frictionless and painless experiences. And humans may not be needed to achieve it. Continuity and consistency at every interaction breeds trust with SBOs, and trusting who they do business with is the #1 influencer when small businesses select a financial service provider.

Our panel of small business leaders have very specific views about financial services solutions around the following topics:

  • How well they feel financial services providers are able to support their growth, especially based on these providers’ marketing strategies.
  • What they would do differently to set up their financial solutions if they were starting their businesses today.
  • Whether they are considering reinventing their business or pivoting to protect themselves from future unexpected external events. If so, do they see financial services solutions helping them now with respect to capital needs, operational needs, or insurance.
  • What they need and want from their financial services (FS) solutions providers.
  • How they feel about them.
  • Where they think the FS market is going or should go to serve them better.

So, we’ve decided to share small businesses voices verbatim and let you draw some of your own opinions and conclusions.

Financial institutions don’t seem to want small- to medium-sized businesses (SMBs)

SMBs have a difficult relationship with their banks and don’t think their financial institutions want to do business with SMBs. This impression stems from a mismatch between what small businesses want and what these institutions offer. Plus, banks tend to lack flexibility or empathy when it comes to the needs of SMBs.

David Cottrell, Managing Director, described the mismatch and lack of empathy this way:

“Banks have products to fit customer models. If your business doesn’t match, tough! My bank never tries to understand issues I’m facing. Their questions are around trying to fit me into their models and then steer me to certain products. I have an ACCOUNT but I am a CUSTOMER. Treat me like one, please.”

Mike Anthony, Speaker, Writer, Consultant, expands on this by adding the lack of affordability as another means of lacking understanding:

“Banks make money on efficiency – big market segments with homogeneous needs. SMBs don’t fit. Or if they serve SMBs, their definition of ‘small’ is bigger than I am! I’ve come to the conclusion that big banks + SMBs is not a good fit. They don’t seem prepared to support SMBs at an affordable price.”

Banks make it difficult to do business

Fees and inflexible rules are among the obstacles that banks put up when it comes to doing business with SMBs. By contrast, SBOs simply want responsiveness, flexibility, and support from their financial institutions.

Reva Minkoff, Founder and President, weighed in on this topic:

“Banks aren’t set up to support SMBs. My first choice couldn’t handle our being incorporated out of state, needing a lot of paperwork. Our bank now has many convenient locations, but their tech is complicated.”

Loch McCabe, President and CEO, pointed out that not every SBO is as financially knowledgeable and what banks could do about it if they really wanted to do business with Small and Medium-sized Enterprises (SMEs):

“A lack of financial comfort and knowledge makes it harder to talk with banks. Banks wanting to serve SMEs should make sure their customers are financially savvy, go the extra mile to train SME leaders to be financially astute, and improve the fortunes of thousands of SMEs and their banks.”

David Cottrell spoke to the need for banks to become educated about SMBs so they could provide better support in the future:

“We must build in flexibility in operations for any future disruption. We’ll need banks to understand issues and respond with appropriate financial support.”

Access to capital is a sore subject

Gaining access to capital is a source of stress for SBOs. Options are limited, costly, or burdensome, and the processes are unappealing.

Reva Minkoff discussed her mortgage experience as an example:

“Banks seem uncomfortable with entrepreneurship as an income source. A mortgage requires a ton of explanations of every change in finances, despite having the cash. Sales proceeds don’t count — your cash isn’t ‘income.’ The growing SMB sector could be better served for mortgages and personal finance.”

David Cottrell talked about some of the other unattractive sources of capital:

“Banks and SMEs are not comfortable bedfellows. This leaves family and friends, or angel investors, who might offer mentoring and networking for a percentage of your business. Banks offer limited advice and will cut and run at the first sign of danger.” He continued by talking about getting capital from unpaid invoices, saying, “If an SMB is struggling with cash flow due to unpaid invoices, factoring companies can buy the debt owed to your business, give you a percentage of the funds owed within invoices and chase your customers for payments. The downside is customers who are bad payers become angry at being chased by the factoring company.”

SMBs don’t have a warm and fuzzy relationship with their financial institutions.

Plain and simple: big banks don’t behave as if they are interested in having small businesses as customers. Their programs, fees, and rules are difficult and inflexible. Plus, these institutions don’t take the time to understand or accommodate SBOs’ needs and challenges.

In addition to the challenges and mismatch, the other options available to SMEs aren’t any more appealing than those offered by banking institutions.

So, what are small businesses supposed to do? Banks that take the time to understand SMBs and actually work with them without breaking their budgets will be in a position to stand out in the marketplace.