Small business owners have had a tough time of it since COVID-19 hit, but they are working hard to bounce back. The second wave of PPP funding gave small businesses a boost, while stimulus checks which encouraged consumers to spend again gave their revenues a further shove in the right direction.
Small business owners have also been discovering the value of the digital tools they acquired during the pandemic. It’s estimated that digital adoption saved 37% of American small businesses, or 11 million, from full or partial closure during the pandemic, and 98% say digital tools help them run their businesses.
But small businesses aren’t out of the woods yet, and they still need assistance. It’s crucial that banks and other financial institutions recognize the need to step up. Small business recovery is vital for the economy – SMEs are responsible for approximately twice as many jobs as large corporations – but it’s also important for financial institutions themselves.
When it comes to small businesses and banks, “relationship” is the defining word. It denotes a two-way street. Banks benefit from listening to their SME customers and delivering the right support, while small businesses gain operating capital, know-how and game-changing tools.
SMEs gain better and more reliable funding
Often, small business owners know there are funds out there, but don’t know where to find them or how to access them. With so many plates in the air just trying to keep a business going, they don’t have the time or focus to prepare for loan applications.
As a result, even when they do hear about a relevant loan, they frequently aren’t able to submit applications quickly enough.
Banks can help. When banks know their SME clients, they can suggest new funding sources and direct them to the right loan products for their needs. By guiding them to better business management and automated bookkeeping tools, banks can also make it easier for business owners to keep their financial information loan-submission-ready at all times.
Banks make more precise credit decisions
A closer relationship between banks and small business owners also means that financial institutions are better placed to make fast decisions about loan and credit requests.
Banks can analyze data from myriads of interactions SME owners have with their business banking platforms and educational resources, giving them a better understanding of their small business customers.
In this way, banks can reduce their fear of fraud or defaulted payments, speed up their decision making about loan applications and credit requests, and improve access to funding and tools for small business owners.
Small business digital adoption is consolidated and advanced
Like other sectors, small businesses went digital during the pandemic, with over two-thirds carrying out a digital transformation during 2020 and one-third moving operations online for the first time. But many still aren’t sure how to navigate it all and are struggling to deliver advanced digital interactions.
Consumers are demanding more contactless and digital payment options, along with digital invoices and receipts, payments through text message, full visibility into payment history, the option to bundle payments and pay in advance, and so on. It can be bewildering to the typical small business owner, but banks can deliver accessible, flexible payment tools that enable them to meet customer demands.
Small businesses also need help deploying business intelligence (BI) and data analytics tools, so they can stop chasing fires and become more proactively strategic. Banks can assist them to be proactive about mitigating risks and seizing opportunities and help them focus on growth instead of survival.
Banks reframe themselves as trusted partners
Banks have an opportunity to both provide the above-mentioned tools – either by developing the technology themselves or by engaging with a technology partner – and to also offer advice and guidance to help small business owners use them in the most effective ways.
In doing so, they can change the nature of their relationship with entrepreneurs.
Small business owners will move from seeing banks as just a place to store their money, to viewing them as trusted partners in their work. They’ll use bank-branded digital platforms as their home bases of digital operations and planning. They’ll also engage with their banks’ messaging on a daily basis, if not more often, reinforcing the connection far more than a traditional monthly or bi-monthly visit to the branch.
The entire small business ecosystem becomes more digital and more efficient
These steps to strengthen the bank-small business relationship brings benefits to everybody. Banks gain insights into SME needs, so they can develop more relevant, more efficient banking and business management products that business owners really need. In turn, small business owners gain the funding, tools, and support they seek, boosting profitability for all parties.
It’s worth remembering that banks and their clients are in a symbiotic relationship. When businesses grow through better data, more insights, better customer understanding, so do the banks that service them. Bigger businesses deliver bigger revenues and more fees to financial institutions.
A closer relationship depends on more interactions between SME owners and banks, be they business transactions, bank business tools, or educational resources. And as this relationship deepens, the more data banks will receive about what small business owners need, and the more accurately they can tailor their business banking products.
Doubling down on interactions is a win-win
SMEs need help not just with funds but with delivering digital products and services to their customers, handling business organization, spotting opportunities and risks in the market. Banks are uniquely positioned to meet that need by providing advice, educational resources, digital banking services, and digital business tools, in ways that strengthen these relationships and build a stronger small business ecosystem.
Banks that connect SME customers with the right loan products at the right times and for the right situations, the right business advice for their stage of development, and the right tools, set the stage for SME growth, which benefits everyone.