Having a trustworthy and dependable primary financial institution is important to many small businesses. This relationship can help a small-business owner make smart financial decisions, open accounts, apply for loans and take out company credit cards.
Unfortunately, many small businesses say they are unhappy with their current financial institution, and 14 percent of those surveyed by FinTech reported switching banks in the past year, according to PYMNTS. Dissatisfaction may have began to grow amid the economic downturn when many lenders tightened their restrictions and turned more small businesses away.
Small businesses turn away from big banks
Now, big banks are warming up to small businesses once more, approving 24.1 percent of small-business loans in March 2017 compared to 23 percent one year earlier, according to the Biz2Credit Small Business Lending Index. Even still, entrepreneurs continue to be unhappy with these banks.
To them, a financial institution should be more than savings accounts and loan approvals. It should be as high-tech as they are - and with more millennials exploring entrepreneurship, the pressure is on to incorporate the latest technologies into the banking experience. These technologies include everything from mobile apps with extensive financial management features to electronic business-to-business payment platforms.
Though many small businesses report being underwhelmed by big bank offerings, 66 percent of them named these giants as their primary financial institutions, according to a study from Raddon. The Financial Brand reported that just 6 percent of small businesses named a credit union as their main institution. Despite the low market share, however, credit unions offer many of the features small businesses seek in a financial institution.
Cost considerations lead small business banking decisions
With almost any business-related decision, entrepreneurs' first consideration is cost. This line of thinking applies to choosing a bank or credit union to work with, too. Credit unions are known for their low fees and interest rates and are more likely to offer free checking accounts. If your credit union offers these features, be sure to advertise that to your business community; you'll likely pique some interest among your local leaders.
According to Raddon's study, one of the top concerns among small-business owners choosing a financial institution is quality of service. Credit unions are also known for being very personal, with advisors taking the time to get to know their members and determining which financial products would benefit them most. High-quality service isn't just about the relationship between an individual credit union employee and the business owner, though; 35 percent of respondents said their primary contacts at their primary financial institutions were the tellers. As such, it's highly important that all credit union employees are welcoming and friendly to members on the phone or in person.
Small businesses seek out high-tech features
Raddon identified that small-business owners who tended to seek out big banks rather than credit unions placed higher importance on online banking technologies and other technological advancements. In addition, nearly half of all respondents to FinTech's survey said the main reason they thought about switching banks was because of a lack of innovative products and services.
Credit unions can meet this need, too. With the proliferation of advanced banking solutions, it has become the norm for credit unions to have mobile apps with features like mobile check deposits, payment platforms and the ability to transfer funds. FinTech found that 37 percent of small businesses used nonbank apps to make business-to-business payments; a robust credit union app that offers further financial management abilities could be a competitive feature.
Further, 76 percent of small businesses whose primary financial institution was a big bank said they used their financial institution's mobile features. This hints that, even when businesses aren't satisfied with their customer experience or the product and service offerings from the bank, they're still happy to utilize a convenient app.
Reaching out to the small business community
Raddon found that the typical small business utilizes two different financial institutions. However, many indicated their secondary banks fell into the same category of their primary institution - meaning it's unlikely that a small business would have one account at a big bank and another at a credit union.That's not to say this combination isn't feasible, though. Close to 40 percent of respondents who didn't use a credit union at present said they'd consider one in the future.
There were several factors that led small businesses to hesitate before choosing a credit union; lack of branches and financial products were among the top reasons. To address these concerns, credit unions may want to reach out to the small-business leaders in their community to teach them about the products they do offer and where their branches are.
As more business leaders seek out new financial institutions that will benefit them, credit unions are in an excellent position to attract new members. Advertising your products and services and showing how business members can find benefits at your credit union may help bring in new business.