Pauric McGowan, professor of entrepreneurship & business development at Ulster Business School, discusses the future agenda for the relationship between banks and SMEs.
A major study by the Federation of Small Businesses (FSB) and the Ulster Business School (UBS) delved into the views of SME owner–managers on the key elements that make up their relationship with their banks, but which are not exclusively based on access to finance.
The relationship between small firms and their banks has been under scrutiny yet the impact of policy findings on banking practices has been limited. To date, the focus has been on the market efforts to get to grips with supply-side issues (the Banks) rather than focusing on demand issues (the SMEs). This study set out to redress this position.
Results indicated relatively low satisfaction with practically all aspects of the banking relationship, with nearly half suggesting all banks are ‘much the same’. Business owners expressed dissatisfaction around quality of service, highlighting the lack of competitive charges and cost transparency, the bank having a poor understanding of their market and failing to provide useful contacts. In consequence, over 60% of respondents stated they had considered switching provider over the past 36 months – only 9% did so.
There were positive elements, with satisfaction in the relationship around the branch environment including convenient location, friendly branch staff and range of services. Many respondents expressed ‘sympathy’ with their bank’s local branch staff but at the level of management, the bank-corporate and the industry, perceptions became increasingly negative.
FSB members’ noted that they enjoyed a good and improving relationship with their local branch, whilst online banking was growing. There were opportunities here for banks to consider reviewing their branch networks and ensuring that the current appetite for down-sizing was replaced by one of ‘right-sizing’.
There also appeared to be a clear opportunity for existing banking providers, or new competitors, to differentiate themselves by offering added value around sector knowledge, network access, empathy and advice – factors deemed important by the FSB’s members. For effective relationships to flourish, the study clearly showed the need for an appropriate balance between branches and online banking – the so-called ‘bricks and clicks’ provision.
Access To Finance
BRS is still of the opinion that there is a total intransigence on the part of ALL Institutions when it comes to access to finance. The only apparent exception is the Agricultural Sector.
It has not been ‘business as usual’ for 6 years when it comes to access to finance. There appears to be a continuing philosophy… if institutions keep saying no they cant make a mistake. Be under no illusion – if and when Institutions decide to ‘take of the blinkers’ and open the safe’ any request for finance will be clinically assessed. Every ‘i’ dotted and every ‘t’ crossed is undoubtedly going to be a prerequisite, so there is a clear requirement to get it right first time. There won’t be a second chance!! This is where BRS has the required skills and expertise to assist.