Small business owners 'turning their backs on bank managers'

News by Adfero for Simply Business

Research suggests that small business owners are not taking advantage of the help available to them. Many owners put off seeking financial advice and, when they do, they are forsaking bank managers in favour of trusted accountants.

Commercial credit agency Graydon UK and the Forum of Private Business (FPB) surveyed 400 small businesses about the financial advice they receive.

Of those questioned, 70 per cent said they would look to their accountants for financial advice, compared to only 47 per cent who consider their bank manager a trusted advisor.

The managing director of Graydon UK, Martin Williams, responded to the figures, suggesting that, “the traditional ‘grey-haired pillar of society’ stereotype of the bank manager as a trusted and respected source of financial advice has faded into the past.

“But as the economy hits upon hard times and banks become increasingly nervous about credit limits, SMEs need now, more than ever, to maintain a close dialogue with their bank managers.”

“We certainly do not want a repeat of the last recession, when the relationship between banks and small businesses broke down completely.”

FPB chief executive Phil Orford suggested the decreased use of banks as a source of financial advice could be due to structural changes in the way they are run.

He explained: “An issue that has not been reported as widely as lending restrictions is the declining level of service being offered by the banks.

“There is an increasing trend of established relationship managers being replaced by individuals in call centres, which leads to the loss of long-standing and profitable business banking relationships.”

“In light of these changes,” he continued, “it is not surprising that more small-business-owners are turning to trusted accountants rather than their bank managers when seeking financial advice.”

Mr Orford said the change in the relationships between small business owners and banks was worrying.

“A return to previous levels of service - which means good working relationships between bank managers and business-owners - would allow banks to manage risk more effectively and provide the appropriate access to finance to those that need it,” he said.

The research also found that small businesses tend not to seek financial advice as often as might be expected, with only 20 per cent of firms surveyed claiming they seek financial advice quarterly or more frequently.

Thirty-six per cent said they had not met with their bank manager or accountant in the last year, while 24 per cent said the lack of contact was due to a lack of faith in the advice they would receive, or because they had been given poor advice in the past.

It was also highlighted that that most small businesses do not take regular time out to look for advice about their finances, with 68 per cent of those surveyed stating that they seek financial advice “only when I think it is necessary”.

Mr Orford said that it is concerning such firms are not sourcing help more frequently, particularly in these testing times.

However, the research did reveal some positive changes in the attitudes of small business owners, with 29 per cent claiming they seek more financial advice than they did a year ago, and 37 per cent stating that they expect to increase the amount of advice they seek over the next year.

The research comes as small businesses prepare themselves to withstand a sustained economic downturn, with some businesses already affected. The Bank of England’s Credit Conditions Survey for the fourth quarter of 2008 found an increase in default rates and losses on loans to small businesses, and an increase in the number of small businesses relying on credit cards to see them through the downturn.

Meanwhile, the Federation of Small Businesses reported in December that around a third of small businesses are still struggling to secure affordable credit after banks tightened their lending policies. In addition, it said 60 per cent of FSB members felt trade had decreased in the previous two months.

FSB national chairman, John Wright, commented: “With trade down and invoices increasingly being paid late, small businesses are having to turn to their banks for credit to tide them over. But, despite the government’s £500 billion bailout, the banks still do not seem to be lending to small businesses.”

Mr Wright called on banks to be more proactive and amenable in their lending practices. With interest rates down, it is more important than ever that the government’s Small Business Finance Scheme is put in place.

“The onus will now be on the banks and their branch managers to stop their Scrooge-like tactics and open their pockets to small businesses” he said.

It is clear that the economic downturn and changes in bank practices are already testing the relationship between banks and small businesses. However, as the research by the FPB and Graydon UK demonstrates, it is not yet apparent whether a fall in the popularity of banks will result in fewer small firms seeking financial advice, or whether they will turn to alternative sources of information, such as accountants.

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