SMEs show reluctance to change banks

The UK’s small and medium-sized enterprises (SMEs) are still showing a reluctance to switch banks despite ongoing concerns over access to finance, bank charges and the calling-in of loans, according to the Forum of Private Business (FPB).
 
The national business group’s survey of banking and finance suggests that more than half of SMEs quizzed were content with their current banking arrangement, with it offering good or excellent value for money.
 
However, SMEs did indicate that bank charges and the reduction and calling-in of loans or overdrafts were harmful activities that banks still undertake and remain a cause for concern.
 
Almost one-in-five (16 per cent) of business owners felt that difficulties in obtaining access to finance from their current bank were an ongoing fear, particularly for those looking to keep afloat or expand using external finance.
 
A further 15 per cent of respondents said they wished for more flexibility and less centralisation in lending, while 12 per cent also suggested banks should shoulder a greater proportion of risk when lending to ambitious firms looking to grow.
 
However, the survey did pinpoint that further campaigning is required to entice SMEs to consider alternative finance options. A quarter of firms surveyed said they would not consider such lending, citing issues such as cost (35 per cent), awareness (21 per cent) and a lack of credible advice (19 per cent) as the main stumbling blocks.
 
Phil Orford MBE, chief executive of the FPB, said: “A growing economy poses its own issues for small businesses, as they decide whether to invest for expansion.

“The government, the banks, other lenders and businesses support organisations are all important enablers of growth and need to work together to ensure small businesses are getting the necessary amount of money in the right format.”
 
Mr Orford also renewed his call for government to introduce a shared branch pilot to heighten competition in the business banking sector.
 
“Competition is partly driven by access in the banking sector. This is increasingly limited by a reducing branch network that continues to decline,” added Orford.
 
“This is sometimes cited as a barrier by would-be entrants to the banking market. Branch sharing can take one of two, or both, options.
 
“Inter Bank Agency Agreements facilitates use of a local bank’s counter by small business customers of other banks. Neutral Shared Branching means any branch can provide basic counter and related services, to agreed operating standards, delivered by a third party provider on behalf of participating banks.”

Date published 14 May 2014 | Last updated 14 May 2014