Rift Between UK SMEs, Banks Grows

Small businesses in the U.K. don’t trust their banks, and new evidence may suggest that they shouldn’t either.

Reports Tuesday (Jan. 17) highlighted a study published by Amicus Commercial Finance, which found the majority of SMEs surveyed (52 percent) have ignored advice delivered to them by their banks. Part of the blame may be on the financial services banks give their small business clients: Amicus noted that 30 percent of SMEs say they wouldn’t describe their banks as “helpful” when it comes to supporting their businesses with overdraft and working capital facilities, and 46 percent said they wouldn’t describe their banks as “flexible,” either.

A lack of human interaction when these small businesses are in search of some type of bank financing proves frustrating for business owners. The automated and digital support banks offer SMEs lead to 22 percent of small businesses describing the process as time-consuming, 17 percent saying it’s frustrating and 10 percent saying it’s complicated.

Those are troubling statistics considering separate analysis from Funding Options found that bank loans to SMEs in the U.K. are declining by about $145 million every month. Regulations around bank overdrafts can be partly to blame, researchers said, adding that the total value of bank overdrafts to SMEs lent declined by 42 percent over the last five years.

Yet, as supply of bank financing declines, Amicus’ report suggests that demand for high-quality service around those financing products is on the rise.

“There is a growing divide between the level of business service and the flexibility required by business owners and the advice being offered by mainstream banks,” reflected John Wilde, managing director for Amicus Commercial Finance, in a statement. “As working capital and cash flow are by their very nature dynamic, most traditional mainstream systems have failed to keep pace over the last few years.”

With such dissatisfaction with their banking services (40 percent said those services were anything but “good”), it’s no surprise many SMEs may ignore advice offered by their banks altogether.

But Amicus’ research also found that deciding to take a bank’s advice with a grain of salt may actually be a good business move. Nearly half of SMEs (47 percent) said that the advice they received from their financial service provider in the last year actually had a negative impact on their business operations. Further, 16 percent claimed that, by taking a bank’s advice, their company is in worse shape than it was before.

“The research shows a worrying trend of business advice from mainstream banks has been rejected or taken on board with negative consequences for SMEs,” Wilde explained.

This isn’t the first time that research has emerged suggesting that U.K. banks are providing less-than-stellar service to SMEs. In 2015, researchers at MarketInvoice found that SMEs face up to 35 hidden bank fees when they seek some kind of financing — on top of interest and service fees. That leads to $640 million in extra charges every year for SMEs in the country, the firm added. Other research has highlighted similar hidden fees associated with cross-border and FX services offered by banks, which analysts say disproportionately impact SMEs.

Also, in 2015, YouGov surveyors found what they described as a “broken bond” between small businesses and U.K. banks, and that’s led to some small businesses actually leaving their traditional banks behind.