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Can Banks Turn SMBs’ Cash Flow Nightmares Into Dreams Of Success?

Small business optimism is hitting new peaks, and while SMBs say they’re planning for growth, they’re not necessarily willing to spend money to access capital — nor do they have the adequate cash flow to do so. So, how can financial institutions jumpstart small businesses with innovative services beyond loans and still make money in the process?

Small business banking industry experts joined PYMNTS’ Karen Webster to discuss some potential answers for a recent webinar, “Myth or Reality: Do Better Small Business Banking Opportunities Exist?”

Victoria Dougherty, director of product management at Fiserv; Will Barr, small business deposits executive at Bank of America and Marcus Rothaar, senior research analyst at Raddon all joined Webster for the conversation. To tackle the issue of small business banking, the experts agreed, the financial services industry must dig deeper into the mind of an entrepreneur.

Cash Flow Nightmares

Survey after survey reveals new highs of small business optimism in the U.S., and that’s not to be ignored by FIs.

“The reason there is so much excitement among businesses and business banking communities is that there is a sense of optimism that we’ve turned a corner,” said Rothaar. “You can look at any number of surveys or research that show small business owners are much more optimistic in 2017 than they have been in the last eight or nine years.”

But optimism doesn’t necessarily mean life is easy for small business owners. In their personal lives, stress is high. According to Bank of America’s research, 41 percent of small business owners cite running their business as the most stressful part of their lives — four times more than the percentage of entrepreneurs who said that raising their children was the most stressful. Nearly a quarter of these professionals have had nightmares about their business failing.

And just as the stresses of personal and professional lives are intertwined for small business owners, their money is often intertwined too. According to Rothaar, about three-quarters of entrepreneurs have used personal funds to meet their company’s short-term finance needs. The stat signals deeper cash flow management issues at play for many SMBs. Raddon Research Insights data shows 28 percent of small business owners cite cash flow as the biggest challenge to their company.

Beyond Small Business Lending

A traditional small business loan may be what first comes to mind for the financial services space when looking to help SMBs manage cash flow. But there is the notorious chicken-and-egg conundrum: inconsistent cash flow means small businesses are more likely to need a business loan; but that also means they are less likely to be approved for one.

According to Bank of America data, Barr said, only about 9 percent of small business owners plan to borrow funds in the coming year. The experts acknowledge that the percentage will likely be higher but is surprisingly low considering all this talk of small business optimism and plans for growth.

“The downturn in the economy that we had, a lot of small business owners were denied for a loan,” explained Dougherty, “and, as a result, they have changed their mindset, saying, ‘Okay, this is how I need to operate today — I can’t get credit. What else can I do?’”

The reality is, small businesses are taking a wait-and-see approach and have gotten into the habit of looking to nontraditional sources of funding — like alternative financial services providers — to fill in their cash flow gaps.

“Small businesses have a lot of confidence in the economy,” Barr said, “both local and national. But their individual revenues and growth plans remain flat. They still expect to grow, but the demand [for financing] is tempered.”

Getting paid — or, rather, not getting paid — is one of the largest culprits to the cash flow challenge. Dougherty said that the way a small business accepts payments has a major impact on their overall finances, with few SMBs willing to pay the fees associated with accepting credit cards and struggling to overcome the on-boarding friction and costs associated with other payment rails. Paper checks, of course, remain a top method for a small business to get paid today.

What financial service providers can do, Dougherty added, is approach SMBs’ need for working capital from the payments angle, not only from the traditional small business loan angle.

Fiserv’s latest way of doing so is to offer banks its Immediate Funds solution, which enables small business owners to have immediate access to funds when they deposit a check (instead of potentially waiting several business days to see that money). Banks can charge a fee for the service and retain their small business customers, while entrepreneurs see the convenience of faster working capital without having to go to a check cashing service, as Dougherty said happens with 22 percent of consumers and small business owners today.

Both Dougherty and Barr agreed that solutions like these are a direct response to the modern demands small businesses are placing on their banks.

“This is a need we have to solve for,” Barr said, adding that other technologies like mobile banking and remote deposit capture have also taken root in the small business banking space to help SMBs manage cash flow more efficiently. “Our small business customers have responded to these solutions that save time and money, and they’re able to get to their funds more quickly.”

This ability to offer technologies and innovative products beyond the traditional small business loan is not only critical to helping small businesses manage cash flow, but to ensuring banks stay competitive.

“From our recent research, about half of small business owners using mobile banking actively said they would consider changing financial institutions if the competitor offered better tools on the mobile platform,” said Rothaar. “We see similar statistics in the online banking platform as well. It shows that the small business owner is evaluating more than just loans and deposits — they’re looking for technology solutions to help them run their business more efficiently.”

The Small Business Bank of the Future

Losing customers to a check cashing service or a competing FI that offers better digital solutions isn’t an option for the banks that service small businesses. There is an opportunity in the market today for FIs to capitalize on SMB optimism and offer incentives and technologies that turn that sentiment into action, and real small business growth.

According to Dougherty, small businesses will be switching banks at a more pronounced rate in the coming year too. How should banks respond? That’s the discussion going on internally at the banks right now, said Barr.

“The mobile platform is imperative,” Barr added, speaking on the focus of Bank of America for the future of SMB services. “Digital capabilities and platforms,” he added, are a top focus.

The experts also agreed that small business FIs must establish a balance between automated and digital solutions and human interaction with entrepreneurs. It’s what they described as a “high tech, high touch” offering, and both strategies are necessary, with advisors and specialists now able to focus on more sophisticated issues for their small business clients once other processes are automated.

“Arguably, the value of ‘high touch’ becomes more important when you give them fewer touch points,” Rothaar said. “Every human interaction is that much more valuable than in the past.”

Dougherty added that providing an omnichannel experience for small businesses will similarly be a critical focus in the coming year, for institutions large and small.

Meanwhile, Barr said, technology will be paramount. “I think we’ll all be talking about entrepreneurs who operate in a workplace environment that’s more virtual, more automated and more digital,” he said. “We need to make sure we have the right solutions around credit and cash management — and the expertise to be with them in those times of need.”



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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