Small businesses are, undoubtedly, the backbone of the UK economy. Data from the Federation of Small Businesses shows there are around 5.6 million small and medium sized businesses in the UK, employing 16.3 million people, and it’s estimated they contribute 47%
of revenue to the UK economy.
However, for far too long, the banking sector has not served small businesses to the same standard it has served consumers. The products and services provided to them have lagged behind consumer products and don’t always meet a business owner’s needs. With
a lack of support from the banks, and many businesses too small to have a finance team in house, the challenges they face in managing their finances are numerous. Whether that is dealing with VAT bills, late payments from customers, or trying to get funding
that meets their needs.
To start to address these challenges, last month, we convened a roundtable of experts across SMEs, fintech, banking, and government. We wanted to have a conversation about how we can address the raft of financial hurdles small business owners face and create
a financial eco-system that truly supports them.
The discussion ranged from the challenges of late payments and access to funding, to the solutions of Open Banking and fintech partnerships. We were heartened to hear agreement from all sides of the table about the need to tackle these issues and it was
equally good to hear people challenging others in the industry, as well as their own sectors on occasion.
There was widespread agreement that the market in which small businesses are operating is vastly different to how it was in previous years. With bank branches closing a rate of knots, gone are the days of small business owners popping into their local high
street bank branch to meet with their relationship manager and get some face-to-face advice. Indeed, many in the room felt that there is now a lack of personalised, tailored advice available – despite the fact there is a plethora of information out there.
Without quality, tailored advice available for small business owners, we need to find ways to make financial products accessible to them – particularly when they may not understand them or have the time or inclination to think about them. Richard Davies
from TSB said, “no one goes into business to be a Finance Director – it’s about the customer, it’s about the product”.
There was also recognition that access to funding was often perceived as a challenge by small businesses. One of our attendees, from one of the big high street banks, admitted that the banks can make finance seem inaccessible to small businesses and another
bank present at the discussion felt that there is still work to be done to restore businesses’ confidence in borrowing following the recession.
Some on our roundtable felt that more work needs to be done by alternative lenders to make small businesses aware of their other options so that the bank isn’t seen as only route. We know that many customers who are turned down by their bank for funding
simply give up, either assuming they’ll be turned down by everyone else or not knowing that there are other options available. According to the British Business Bank, 30% of small businesses who didn’t get the full loan amount they applied for gave up or cancelled
plans - as Valentina Kristensen from Oaknorth said “when you hear no so many times you just stop asking”.
There was also much talk of the RBS Alternative Remedies Package – designed to improve the financial products and services available to small businesses and increase competition in business banking. However, some at the roundtable felt it was a missed opportunity
that only £40m of the £750m fund is being dedicated towards lending, and that there was too much focus on current account switching and not enough on encouraging people to shop around for all financial products – despite the fact this is the norm in the consumer
market.
However, it wasn’t all negative. Emma Jones of Enterprise Nation was still ardent that Britain is a great place to start a business. There was also recognition that the UK is a world leader in fintech and that fintech companies, either partnering with other
organisations or working on their own, are going to be crucial in helping delivering the type of change we need to help put small businesses in control of their finances.
It was also clear that Open Banking was seen by many as a potential solution to these problems. Open Banking offers huge potential to provide tailored and accessible information to businesses based on their own data, and many agreed that collaboration between
different types of organisations, using Open Banking, could deliver the solutions that small businesses need. At Funding Options we’re already using this to speed up the process of lending and are actively looking at how else we can use it to benefit the small
business community.
While there are certainly challenges for small businesses at the moment, the UK small business community is thriving and we believe it will continue to do so. We just need to work together as an industry to support them in the best way possible and make
their lives as easy as we can. We look forward to continuing our conversation with those at the roundtable and exploring how we can best help small business owners.