Firms Still Have More Confidence in Non-banks

Federation of Small Businesses says banks need to do more to win back confidence from the UK’s small firms.

Five years after the collapse of Lehman Brothers and the subsequent global recession, the FSB says that banks still do not have the full confidence of the small business sector.

According to the FSB, whilst nearly half of business owners (49%) rate their banks positively, more than half (56%) believe that banks do not care about their small business customers.

When asked about their concerns with banks, 49% of firms stated that disproportionately large profits and salaries were their number one problem with the banks.

About a third of small businesses polled said that fees were also a contentious issue in the light of high banking profits and pay, with the average in annual banking fees being £1,075 per firm. Some had annual bank charges in excess of £4,000.

Key to restoring confidence in high street banks, the FSB believes that the banks need to build relationships with their customers. This is a point anecdotally taken up with the call for "good old-fashioned banking" where the bank manager actually knows the client.

The FSB takes this a step further by demanding that banks build relationships with customers, not just for the short-term process of assessing firms and lending finance but during the development and growth stages of the business life cycle too.

Alternative Finance

For entrepreneurs and business owners who have failed in applying for finance, the FSB has said that it is crucial that banks be involved in signposting to alternative forms of finance.

When asked, just 37% of businesses said they knew about alternative finance options. In the absence of bank lending to SMEs, forms of finance such as peer-to-peer lending, from the likes of Funding Circle, and challenger banks like Handelsbanken, were known to only 18% of small firms.

Another problem highlighted by the FSB’s findings was that 40% of business finance refused by banks is overturned on appeal and yet a mere 6% of firms actually know about the appeal system run by the banks.

The business group has suggested that more needs to be done to help the visibility of, and access to, non-bank lending.

The FSB believes that the Government could be part of this by supporting ands promoting these sources of alternative finance through direct funding (via the new "business bank") or by adjustments to the tax system.

John Allan, National Chairman, Federation of Small Businesses, said of the figures:

"Since the financial crash five years ago, small firms’ confidence in the banking system has been hit. Not only have they been plagued by inability to access finance and overnight changes to their lines of credit, these latest figures show they have faced increasing fees for banking services."

On the issue of trust, Allan noted:

"Restoring this trust and getting banks to work in partnership with small firms is absolutely crucial for the recovery. We recognise the banks have done much and recognised their past mistakes, starting the culture change needed. However, our latest figures are a salutary reminder that process still has some way to go with more than half of our members believing the banks don’t care about small firms."

On the future of business banking and how it needs to evolve to meet the needs of small firms, John Allan concluded:

"As much as a culture change in the banks, we must diversify the lending landscape as a whole. We fear that without real competition in the banking sector, small firms will only have the high street banks to turn to. We therefore urge the Government to maintain their efforts to promote non-bank sources of finance and thereby increase choice for small firms as well as competition in the market."

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See also our business advice articles on Borrowing from friends & family and Sources of funding.

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