Small Business Owners Remain Reluctant to Switch Banks in the Current Climate

Small Business Owners Remain Reluctant to Switch Banks in the Current Climate

While stricter lending criteria by the banks has limited access to services for thousands of SMEs across the country, a new survey suggests that most small businesses are still reluctant to seek alternative banking arrangements.

The new report by the Forum of Private Business (FPB) revealed that most SME owners are unwilling to switch banks despite ongoing concerns about access to finance, the calling in of loans and rising bank charges. According to the FPB banking and finance report, just over half of the small businesses surveyed were satisfied with their current banking arrangements, stating that they were good or excellent value for money. A further one third of those surveyed described their current bank’s offering as average.

At the same time, 16% of the SMEs surveyed were worried about difficulties in obtaining access to additional business finance from their bank. This was of particular concern for those businesses requiring extra funds to survive a downturn, as well as those looking to grow their enterprises using external finance. A further worry among those surveyed was the current level of bank charges, and many business owners also cited the reduction and calling in of loans by their banks as an ongoing concern. Small business owners agreed that such practices were “harmful” to their businesses.

When asked how the banks could improve their small business services, 15% called for greater flexibility and less centralisation when it comes to lending while 14% sought enhanced access to finance. In addition, 12% of respondents believed that the banks should be shouldering a greater proportion of associated risk. Despite these criticisms, only one in five of the SMEs surveyed said they would consider switching their banking services to an alternative finance provider while one quarter said they would not consider lending from such providers. The main reasons given for not considering alternative finance providers were cost (35%), awareness (21%) and a lack of reliable advice (19%).

Responding to the survey results, the Forum’s chief executive, Phil Orford, said: “A growing economy poses its own issues for small businesses, as they decide whether to invest for expansion. The government, the banks, other lenders and businesses support organisations are all important enablers of growth and need to work together to ensure small businesses are getting the necessary amount of money in the right format.”

In addition to publishing the results of its survey, the PBS also renewed its call for the government to increase competition in business banking by introducing a shared branch pilot. As Orford described it:

“Competition is partly driven by access in the banking sector. This is increasingly limited by a reducing branch network that continues to decline. Branch sharing can take one of two, or both, options. Inter Bank Agency Agreements facilitates use of a local bank’s counter by small business customers of other banks. Neutral Shared Branching means any branch can provide basic counter and related services, to agreed operating standards, delivered by a third party provider on behalf of participating banks.”