3 ways to make your bank a portal to success
A bank is an intimate partner in a relationship with your business: it knows where your money comes from and where it goes. Your business might need different kinds of financing at different moments, or new services, like foreign exchange if you expand to new markets. Choosing a bank that can help you on multiple levels keeps you from having to start a new relationship from zero every time you need a new service. Plus, some banks are integrating data analysis and dashboards that can automatically give you a snapshot of your finances. Banks have increasingly sophisticated online portals that allow you to access information or manage your money at any time—the kind of flexibility that entrepreneurs really need. Here are some tips for entrepreneurs who need to choose a bank or get more out of their bank.
- Change banks
It happens, though not often: 14% of SMEs in a survey switched banks in the past 12 months. On the other hand, more than half of U.K. checking account holders have never switched banks, and the average current-account relationship is 17 years. One reason to look farther afield is being told “no.” In the U.K., 46% of SMEs—and 68% of micro businesses—had difficulties in raising the finance for working capital, cash flow, equipment acquisition, etc., from the first institution they approached. In the U.S., smaller banks approved almost half of the loan requests they received, vs. a quarter of requests approved by big banks. But some big banks actively court SMEs: U.K. banks approved eight in 10 SME funding requests last year. If you’re looking to change banks, or are just starting out, here are some questions to consider in making your choice:
- What do you need from your bank? Are you investing in equipment? Do you want help with cash flow? Do you need credit guarantees for suppliers? Do you need credit-card facilities for e-commerce? Finding a full-service bank can save you time.
- What are your growth objectives? SMEs account for 60% of private sector employment in the U.K. But long-term economic growth cannot solely rely on increasing the number of start-ups; business survival and expansion are also critical. A good bank will establish a relationship with your business that can help it grow.
- How many transactions will you make each month? Banks offer different levels of accounts that include varying numbers of transactions before adding a per-transaction fee. Look for banks that waive monthly fees for new customers. Santander offers up to 18 months without fees for new businesses, and you earn interest on any credit balances. Santander was named the Best Business Current Account Provider for 15 years by Moneyfacts.
- If you hold a current accountwith Santander you can make transactions using any Post Office®* branch1 in the UK.
- Beware of predatory lenders. Warning signs include interest rates higher than those of other banks; fees that are more than 5% of loan value; not disclosing the annual percentage rate or full payment schedule; asking you to leave signature boxes blank.
- Explore fintech
Fintech appeals to SMEs with low fees and online access. If you have limited, straightforward needs—a checking account for your business and nothing more—then fintech might be a solution. Most fintech start-ups focus on just a few services—that means you’ll need to put together a stable of providers if you need other services or as your business grows. Fintech emphasises self-service and appeals to tech-savvy customers who are ready to take a hands-on approach in exchange for lower fees or digital-only access. Lending by the two biggest U.S. fintech platforms is estimated to have risen 65-fold between 2009 and 2014. In fintech, the lenders are typically individual or retail investors looking for good returns. Some platforms finance loans from their own balance sheets while others are simply brokers between borrowers and lenders. That can affect you as far as how the platforms are regulated and how financially secure they are.
The microfinance non-profit organisation Accion urges caution toward online lenders, which don’t have a track record and which don’t offer the option of face-to-face help. Look again at your main bank. Some big banks have adopted fintech techniques, such as online platforms and apps to track spending and to provide 24/7 support. In the U.K., Santander can deliver SME financing in hours, thanks to its investment in online lender Kabbage. The accelerated online process gives businesses access to as much as £100,000 of working capital.
Banks are using fintech themselves to lower costs. That’s good for SMEs because the cost to banks of evaluating loan requests for SMEs is higher than for big businesses; anything that lowers costs makes SMEs more attractive. Not only that, banks’ fintech services are able to collect complex transaction history for SMEs, filling in an information gap that has hurt SMEs in the past.
Consider the risks of new platforms. One reason banks are picky about whom they lend to is because they are required to by financial regulators. Many of the banking regulations imposed after the 2008 financial crisis don’t apply to fintech, which was still relatively new and not seen as big enough to affect the economy. Fintech’s rapid growth has since raised concern that fintech platforms aren’t adequately regulated and would not survive a crisis.
- Look for banks that are government partners
In the U.K., small businesses can get government-backed export finance directly through a few partner banks, including Santander. The U.K. Export Finance agency provides guarantees to the banks, including in cases where the businesses have reached their credit limit or the deal is deemed too risky for the banks. In the U.S., look for banks that are preferred or express lenders of the Small Business Administration. The program reduces paperwork and speeds approvals for faster access to funding. It also offers more flexible underwriting and repayment terms than traditional financing. Santander is a preferred and express SBA lender.
Resources for small businesses
Business Is Great: http://www.greatbusiness.gov.uk/
Business Finance Guide: https://thebusinessfinanceguide.co.uk/
Better Business Finance: http://www.betterbusinessfinance.co.uk/
Business Finance Advice Scheme: http://www.icaew.com/en/technical/finance-and-management-faculty/smes/sme-news/business-finance-advice-scheme
Business Banking Insight: https://www.businessbankinginsight.co.uk/banking-tips/great-resources-for-small-business-banking-support/
British Business Bank Markets Report: http://british-business-bank.co.uk/small-business-finance-markets-report-201617/
Small Business Administration: https://www.sba.gov
BAI (Bank Administration Institute): https://www.bai.org/banking-strategies/retail-banking/small-business-banking
1 Except for Post Offices® on the Isle of Man and British Forces Post Offices®.
*Services and opening hours for individual Post Office® branches within the Post Office network may vary