B2B Payments

SMBs Reveal Complex, Contradictory Relationship With Banks

Alternative lenders entered the market, in large part, to position themselves against the big banks. In the U.K., AltFin promised faster, more convenient access to capital during a time when the rift between small businesses and banks was growing (and continues to grow) thanks to claims of hidden, excessive fees and other factors.

So it’s no surprise that the latest report from Hitachi Capital Invoice Finance, SME Attitudes to Borrowing, finds SMEs in the U.K. don’t trust the big banks. In its survey of more than 500 small- and medium-sized businesses, Hitachi Capital Invoice Finance, researchers found only 15.54 percent of SMBs actually fully trust traditional lenders.

Hitachi Capital Invoice Finance breaks down SMBs’ borrowing attitudes even further, examining the sources of working capital for business owners, why they do or don’t borrow, and what type of financing they pursue. Researchers break all of this data down by industry and geographic region. PYMNTS highlights the key takeaways from the report below.

28.3 percent of new startups trust traditional lenders, suggesting something goes wrong along the journey from startup to fully fledged SMB, considering the percentage of small business owners that fully trust the banks declines to 15.54 percent. Interestingly, once SMBs are established in London, the percentage of businesses that trust traditional banks nearly doubles to 28.46 percent. But no SMB in the North East or Northern Ireland trusts traditional lenders.

80.28 percent of SMBs invest personal savings into their own companies, making it the most common type of personal funds invested. One hundred percent of companies in the North East said they had invested personal savings into the company. Coming in second place is the personal credit card, with less than a third of SMBs saying they use this to invest in their business.

37.25 percent of SMBs have pursued a bank loan in the last year, but nearly the same amount, 32.87 percent, said they haven’t pursued external financing at all in the last 12 months. Small business overdrafts were the third-most common response, followed by invoice financing and a loan from a friend or family member.

44.76 percent of SMBs with 10 employees or fewer say they try to avoid borrowing at all costs, with analysts suggesting that the smallest of the SMBs are looking to be self-sufficient. But younger, start-up companies, the report found, are more likely to need and want external finance assistance. Younger SMB owners are more likely to trust traditional lenders than older business owners, while older business owners are less likely to think Brexit will directly affect their ability to access external financing.

51.95 percent of SMBs in the business services industry said they had sought external finance in the last year, making it the sector least likely to seek financing. Meanwhile, 90 percent of the recruitment agency SMBs surveyed said they had pursued financing in the last year.

53.59 percent of businesses say their main reason for not wanting to borrow is because they don’t want to owe additional money, but researchers noted this is despite nearly two-thirds of SMBs reporting they have used personal funds to finance their business.

“It’s interesting to see business owners remaining cautious with regards to business funding, potentially restricting their ability to grow,” reflected Andy Dodd, managing director at Hitachi Capital Invoice Finance. “There appears to be an ongoing negative perception of more common lenders, despite them using this option to keep their businesses funded. This shows a clear discrepancy between SMEs’ wanting to borrow from these types of lenders and them needing to.

“More than 20 percent also noted that maintaining their cash flow is a top concern for them for the year ahead, and indicates this is something they are currently struggling to manage,” Dodd continued. “It is important for business owners of any kind to be aware of the funding options available to them and what they are eligible for, as there are a number of options available to help prioritize overdue payments and maintain financial resources, particularly outside traditional lenders.”


Featured PYMNTS Study:

More than 63 percent of merchant service providers (MSPs) want to overhaul their core payment processing systems so they can up their value-added services (VAS) game. It’s tough, though, since many of these systems date back to the pre-digital era. In the January 2020 Optimizing Merchant Services Playbook, PYMNTS unpacks what 200 MSPs say is key to delivering the VAS agenda that is critical to their success.