In all my dealings with small business owners, a topic that comes up regularly is their relationship with the bank and how they can switch to a new one. Yet anecdotal evidence suggests that as little as 2 per cent of businesses actually change their main relationship bank in a year.
Of course like most marriages, things don’t start off acrimoniously. Initially many find a bank they are happy with and have a relationship manager that understands the business and its potential. But over time that manager may be moved off the account and a new manager takes over. He or she does not have the history with the customer and the relationship often seems to sour.
Understandably the business then wants to move. So why are so few businesses jumping ship? Should more be, and what are the key considerations before doing so?
Ground hog day
We have seen many businesses transfer banks, excited by the prospect of a strong relationship with a new team, only to be faced with the exact same issue after a short period of time as the new team also move on leading the business back to square one.
The best advice I can give is don’t be impulsive. It would be unwise to jump ship at the first sign of an issue. I believe such a move should only be made for a real business reason: better facilities, a better charging structure or lower security requirements as opposed to a relationship issue.
Banks do not like losing customers so if a client has an issue a good starting point is to take the matter higher up. The business lawyer or accountant may have a good contact at the bank who may be able to change the relationship manager.
If the company’s business plan shows the need for additional finance the first port of call should be the existing bank. They represent the easiest and potentially quickest route for finance.
If the bank presents a hurdle, it may be sensible to shop around; however, businesses that change banks and immediately ask for lending could well be reducing their chances. Despite much of what has been written in the press, a track record counts. A new bank may have more reservations about the level of facilities to offer.
Breaking up is hard
Moving could cause disruption to business. We have seen many instances where a client’s customers have been sent new bank details but for months afterwards still pay into their old bank account. Sometimes it can take days to transfer the funds, unless the business is happy to pay higher transfer charges.
A business can ascertain which bank is right for them by focusing on vital requirements – for example in the short term a loan may be needed to finance a property purchase or asset based lending (such as invoice discounting). The key to a successful move is being clear about what the needs are.
The Payments Council has begun a project to make bank account switching easier for both consumers and small businesses in a move that is being send as the first step to making changing bank quicker and simpler. Whether we will see a surge of SMEs changing banks remains to be seen.
Ultimately, when deciding ‘should I stay or should I go’, the most crucial point for a business is to have all the information to hand and carry out research.
It is vital to have a strategy for future financing. If it is a matter of simply not getting on with the relationship manager, perhaps the answer will be to stay and ask for a new one. If the issue is more about facilities and what the bank makes available to the business, it may be time for a change.