B2B Payments

SMBs Shift Their Cash Management Strategies

Recent data has warned that small business (SMB) optimism is beginning to drop after months of record highs. It wasn’t altogether unexpected, though: After all, what goes up must come down. Yet, amid talk of declining optimism and an impending recession in the U.S., the latest evidence has suggested that entrepreneurs are holding onto their financial confidence — though it may be changing the ways they manage company cash.

This week’s B2B Data Digest dives into the insights from new reports released by Capital One, Xero, Swift Prepaid Solutions and others, which draw similar conclusions about small business financial management. While traditional banks have typically maintained their control of the small business financial services and lending space, entrepreneurs are increasingly looking toward alternatives after a year of cash flow troubles.

Thirty-five percent of businesses have considered a loan from a non-bank provider, the latest survey of SMBs by Growth Street found. The firm polled 2,000 executives at U.K. SMBs, and found that the proportion of companies seeking alternative finance increased 5 percent year over year, while half said they would seek an alternative to a bank loan if they were to pursue business financing. Furthermore, 15 percent fewer SMBs said they were not confident in their understanding of alternative finance, compared to last year’s figures. In a statement, Growth Street CEO Greg Carter described the steady increase in understanding of alternative finance as “a symptom of profound changes” in the U.K. financial services market.

Thirty-eight percent of SMBs surveyed by Swift Prepaid Solutions took out a loan in the last 18 months, while 64 percent of those said they planned to do so again. According to Swift Prepaid Solutions, the majority of businesses that have sought financing in the last 18 months prioritize the ability to receive loan payouts in a prepaid account, followed by ACH payments to their bank accounts. Only a small portion (researchers did not reveal exact statistics) said they prefer checks, funds loaded to a prepaid debit card or PayPal to receive their financing. According to the company, the data revealed that small businesses are prioritizing interest rates and speed of payment when it comes to seeking financing for their firms — representing a shift of “allegiance away from traditional lending practices.”

Forty-six percent of small businesses were cash-flow negative last year, new Xero research found. The survey, which polled Xero’s SMB subscribers in Australia, found that poor cash flow was cited as the number-one reason small businesses shuttered their doors. The country’s small businesses are set to borrow up to $80 billion AUS (about $56.9 billion USD) in the next 12 months, but small business owners said they struggle to access funding, thanks to the complexities of the loan application process.

Sixty-six percent of small businesses have maintained their business outlook, despite stock market fluctuations, Capital One’s Small Business Growth Index found. Its survey of 500 small business owners revealed that while outlook remains steady, 49 percent are concerned about an impending recession and its impact on their companies in the year ahead. In a statement, Capital One Head of Small Business Bank Jenn Flynn described the current small business sentiment as “cautiously optimistic.”

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