Now that we’re further into the pandemic, we know a lot more about how businesses are coping. Many are struggling, but more are managing better than you might think, especially given the news coverage. For banks, the message is clear: Focus on your small and medium-sized relationships and be more than just a lender.
We asked small and medium business owners (under 1,500 employees) across a range of industries about their main financial challenges and needs during the COVID-19 pandemic. We conducted a survey of 570 participants at the end of May, with a focus on business owners’ experience with the CARES Act Paycheck Protection Program’s (PPP) process. This is a follow-up to our initial survey of 469 small and medium-sized businesses in early April.
of the companies have been in business for more than 20 years
operate from a single site
have fewer than 10 employees
received funding during the initial CARES Act PPP
It’s not all doom and gloom. While most small businesses are feeling the stress of the pandemic, our survey showed that many of their owners are encouraged about the help they’re receiving from their banks. In fact, an overwhelming 82% said they have a positive view of the steps that their primary bank has taken to alleviate the impact of COVID-19, up from the 78% who had that view in early April. Three in five business owners reported only moderate or low stress when it comes to their business’ current financial situation. Small businesses are hurting, but maybe not as bad as many people once thought.
These responses reinforce the importance of segmenting your client base to understand who has been barely affected, who is struggling but likely to recover and who represents a serious credit risk. Engage your customers with human-centered services that offer experiences to match their unique expectations.
The PPP was designed to help small businesses. It has helped many, but the road has been a bit rocky. Many applicants were frustrated with the initial program application process, and just 15% of the respondents who applied were satisfied with the full PPP experience. Transparency around the qualification criteria from the federal government and the banks was a leading complaint (30%) among our survey respondents. Speed of the overall application process was a main concern as well—cited by 28%. Based on our survey, 23% of small and medium-sized businesses would have wanted banks to ease the application process and nearly one in four applicants hoped for clear communication of the terms and status of the application. We believe banks will want to incorporate lessons learned from originating PPP loans as they prepare to receive loan forgiveness requests. Government programs can often be complicated, and banks can help business owners find clarity.
By rethinking what they do—positioning themselves as business enablers rather than just lenders—banks may help their clients far more. Are you taking adequate steps to attract clients who didn’t get what they wanted from other banks? Help take out the guesswork by using data to anticipate and act on prospects’ (and clients’) expectations.
A growing number of business owners are considering switching banks—22% of them over the next 12 months, according to our survey. And business owners who applied for PPP funding are four times more likely to consider switching their primary bank compared to those who have not applied. The reason is two-fold: Some are so unhappy with their current bank that they are looking for an alternative. Others didn’t receive enough PPP help to survive so they’re looking for additional credit to keep their companies afloat. Financial institutions can look at this moment as an opportunity to win new customers—but you’ll want to use data effectively to know who these clients are.
One small business owner we’re acquainted with, for instance, was denied access to PPP by his bank because he wasn't a credit customer—but he was a valuable transaction banking client. Now he's planning to move the rest of his relationship elsewhere.
Do you know which customers are high risk and how many are high value? Poor, siloed data is no longer a valid excuse. Put your data to work: Rapidly connect internal data for a single, accurate and always up-to-date view of your current customers.
Customers who find their current banks failing to meet their expectations during this process are at least open to exploring new banking options, and they may not be afraid to make the switch.
Many small businesses may need more financial help than they’ll get from PPP alone. A large majority of PPP applicants reported that they’re looking for additional means to access credit and are considering tapping into both business and personal reserves. Fifty-nine percent (59%) said they’re turning to credit cards, and 47% are turning to their personal savings and 401(k)s to meet operating expenses. Thirty-four percent said they’re looking for secondary banks to fund their working capital needs.
Banks may want to expand their relationships, as long as they're aware of the risks. You can add value in other ways. For example, business owners may not be aware of their full set of options. By acting as a trusted advisor, you can help these clients understand the most suitable funding strategies available during this crisis.
Many companies are changing the channels they use, but not always in predictable ways. While 27% of respondents have shifted toward digital since the onset of COVID-19, our survey showed that a surprising 6% have shifted toward branch banking.
Business owners continue to be more interested in digital, but that doesn't mean the end of branch banking. So don’t write off branch banking yet.
Business owners have had a range of responses to the pandemic. Some have been frustrated by their banks and some haven’t. Some are desperate for more credit and some aren’t. Some are interested only in digital offerings and some are still going to their local branch. Banks have an opportunity to strengthen their ties to their clients and the community, but they’ll want to be smart about how they do it. Make sure you identify the right customers. Use data carefully to make segmentation decisions, and you’ll be more likely to keep the clients you value most.