A small business study at the beginning of the year revealed growing dissatisfaction with the nation’s largest banks. We re-visit that post.
“Neither a lender nor a borrower be” may have been good advice for Hamlet, but it isn’t winning banks many friends in the small-business community.
A survey conducted by the Federal Reserve last summer revealed that while small-business owners were more willing to invest in new plant and equipment, many banks didn’t share their enthusiasm, denying loans to 50% of the firms that applied. In addition, another 25% of companies received only some of the credit that they wanted.
Business owners blamed the problem on bad debt and heightened scrutiny by regulators, while economists tended to cite weak economic fundamentals and the collapse in value of real estate and the other collateral used to secure loans.
Whatever the reasons for the reluctance to loan, its impact on business owners’ attitudes and behavior is clear. Overall satisfaction with banks has declined, and customer loyalty has plummeted. In an October survey conducted by J.D. Powers, only 19% of small business customers said they would definitely go back to their banks – down from 34% in 2008. The banks ranked lowest on the satisfaction scale were the nation’s largest: JP Morgan Chase, Bank of America and Citibank.
On the other hand, many regional banks and financial service companies actually increased their small-business lending last year, which probably accounted for their popularity among survey participants. Direct Capital Corporation, for example, increased lending to small businesses by 40% in 2010, and expects a similar increase in 2011.
While larger companies can access capital in a variety of ways, including bond issues, small firms are usually dependent on their banks as a source of capital.
In addition to dissatisfaction with lending policies, the business owners polled stressed the importance of having account managers who understand their businesses, communicate often, and are available both in person and online. One of the biggest complaints among small customers was being hit with unexpected transaction fees, especially when the fees aren’t appropriate to their situations.
Has your company been denied credit within the last six months?