RSS feedsSmall businesses should be big business for banks, but how many times have your clients felt let down by the service they received from their branch and wanted to switch, if only they could find the time? Or, looking at cold cash, have they ever enviously spoken to you about the latest deals for commercial loans or charge-free current accounts?
If the answer is yes, then you are not alone, and the banks know this. They are keen to keep hold of their existing small business customers, while at the same time attempt to lure more companies away from their competitors. Although, judging by recent surveys and government-backed investigations, small businesses could be forgiven for thinking that banks are at best complacent and at worst do not care about their business customers.
More businesses are now finding the time to switch banks, according to the Forum of Private Business. Its chief executive Nick Goulding says the number of businesses not considering a change of bank has fallen from 64% in 2002 to 58% in 2006. It’s still not a majority, but a figure that should make banks take note. ‘This shows that firms are becoming inclined to shop around for the best deal,’ Goulding says.
At the same time, a study from Warwick Business School has found that more than half of all business account switches were because the companies were either offered better facilities and services at their new bank or were dissatisfied with their old one.
Quality and value
‘It’s not an either/or,’ says Stephen Pegge, head of communications at
Lloyds TSB Business. ‘Businesses want
quality, and they want value, and it is not enough unless you offer both,’ he
says. Or as Matthew Knowles at the Federation of Small Businesses puts it: ‘Any
bank that can offer a personal [business] service would be on to a winner.’
Even though banks have now agreed to make switching banks an easier process, experts say businesses should concentrate on developing a lasting relationship with their bank. ‘The key for smaller businesses, which are not so well established and therefore not so visible from a banking perspective, is to build relationships based on an understanding of the business,’ says Charles Simpson, head of corporate finance at Saffery Champness.
Others question whether it is worth spending time shopping around at all. According to John Davis, the marketing director for Barclays Local Business, banking costs amount to around 3% of overall operating expenses. ‘We need to keep this in proportion,’ he says. ‘We often hear people saying that they might get a finer rate [elsewhere], but that they wouldn’t get a good relationship manager.’
New entrants to the business banking market beg to differ. Mark Curran, head of relationship management at Bank of Scotland, says shopping around is ‘absolutely the right thing to do. For small businesses, there are some great deals out there. If a company is trying to find other avenues of business to increase its income, just switching its bank could achieve this.’
But Lee Tillcock at financial research consultancy Moneyfacts wonders just how many SMEs really know how much they are spending on banking services. Research conducted by Alliance & Leicester Commercial Bank suggests that business customers with a turnover less than £1m typically pay more than £500m per year in charges, with the average business spending £425 a year on cash transactions alone.
There are certainly advantages to keeping all your business banking under one roof experts say this allows the bank to understand the full picture of the business and ensures they can offer the best products and service. ‘A good manager will be able to bring in the wider resources of the bank,’ says Simpson, though he accepts there may be times when it makes sense to look elsewhere for finance.
One for all
But as Barclays’ Davis says: ‘If you have all your financial products in one
portfolio, there is a definite ability to make those products work harder for
you.’ Davis also observes that many entrepreneurs use their same bank for
personal banking, which allows the bank to offer advice on areas such as
retirement planning and insurance. However, some suggest there is no harm in
spreading your business around, perhaps keeping another bank waiting in the
wings.
In the event that you don’t want to switch, talk to your existing bank. As Tillcock says: ‘In a competitive market, it is in a business’ best interest to raise issues with their existing bank if they are dissatisfied with the level of service or charges, as they may offer a better deal without the need to contemplate switching to another provider.’
For more go to www.moneyfacts.co.uk
