Running a small or mid-sized business is always a challenge, but those challenges have never stopped intrepid spirits from creating new businesses that continue to fuel the majority of our economy. Their agility in adapting to not only the ever-changing digital climate as well as to multiple global crises has shown that the small business is here to stay – and that’s a great thing.
But new challenges are on the horizon as interest rates rise and discretionary consumer spending decreases. Small business owners everywhere are preparing for yet another round of trials, and for institutional support.
Banks and credit unions can step up to ensure that small businesses – whether right in town or on the other side of the country – can continue to thrive and contribute to their local economies. With solutions tailored to small business clients like higher interest rates on core deposits, financial institutions have the opportunity to not only help small businesses navigate the challenges ahead, but also build their own business portfolios. That requires offering a dedicated business account product.
For too long, businesses too small for commercial accounts have had to rely on tweaked consumer accounts. But the unique needs of businesses demand unique solutions from banks and credit unions. When it comes to business banking, community institutions are coming up on a “make or break” moment: either they’ll start offering the products small businesses need to thrive, or those businesses will go elsewhere.
Many small business owners might consider a business account to be an unneeded hassle; opening business accounts, by law, requires providing more information than a consumer account. Is it a little extra work? Yes, but it’s also worth it for small business owners.
Having a business account can improve a business’ credit rating, and keep it separate from personal credit ratings. It also makes it easier to keep records separate, reducing headache and confusion – as well as possibly costly mistakes – down the line. One of those options is loans. Small businesses are less likely to secure loans, and about half of them don’t have access to formal credit. Offering business accounts opens the door for financial institutions to do more financing and loan products. And the better a relationship an institution has with their business customers, the more likely they'll be to work together on loans and lines of credit, making it a win-win for everyone.
Recordkeeping confusion and even legal issues may arise if a personal account is used for business expenses, and the best way to avoid that is to simply have a dedicated business account. While it’s okay, and even preferable, to use the same bank or credit union for personal and business banking, it’s not okay to use the same account for personal and business use.
Digital opens up new opportunities for business owners, such as reaching larger audiences, the ability to hire remote employees, and the ability to pay and get paid through apps. Just like digital optioning is becoming table-stakes for FIs, it’s also becoming so for businesses. 90% of businesses have increased their reliance on technologies.
Finally, a business account lends credibility and a sense of security to the business owner’s customers. People will be more comfortable making payments to a business rather than an individual. A third-party integration like Autobooks allows small businesses to improve the way they send out invoices and get paid.
Commercial accounts, plainly put, are overkill for most small- and mid-sized businesses. They’re designed for companies and corporations that have very large budgets and accounts, whole finance teams, and a host of other resources that small businesses simply don’t have, and they come with the complexities, and sometimes the fees, that go along with all of that.
In addition, many community financial institutions are also not equipped for those kinds of accounts. Luckily, business accounts are leaner and lighter, and something community banks and credit unions are capable of handling.
Business accounts do have their own idiosyncrasies, but knowing where the most common pain points are is the first step in developing a plan to overcome them. It’s especially crucial for this information to be clearly conveyed to first-timers as they navigate the steep learning curve of business ownership.
To begin opening a business account, owners, except for sole proprietors and single-member LLCs, must have an employer identification number (EIN). Many don’t realize that, though, which can cause hiccups in the opening process.
Many business owners don’t expect some of the more obscure or unexpected requirements, like shareholder information, certificates of good standing, or specifications about international transactions.
Further complications can arise if there are more than one owner of a business. Each owner needs all their personal information on record to open the account.
Just like any other bank customer or credit union member, business owners simply want accessibility, options, and security at minimum hassle. By building upon the framework of the simpler consumer account, financial institutions can easily translate their expertise in that area into business banking. Taking the “shopping cart” style approach to account opening allows business owners to select the exact products they want for their business’s unique needs, and leave behind the products they don’t.
One place to manage everything: Multilayered options help small businesses invoice clients, assign team roles, manage payment and more; things individuals don’t generally need to worry about, but are crucial for business owners. Consolidating multiple sources of data for things like taxes, billing, and payroll can help boost efficiency and reduce stress for business owners. This also allows them easier access to new insights that can help them in the future. Furthermore, 87% of business owners want the same provider for banking and credit services, making accessing both as easy and seamless as possible.
An intuitive experience they feel comfortable using: Small businesses don’t typically have finance teams. That’s why it’s so important that the business banking experience be intuitive and seamless for businesses to manage themselves. This can be helped by automated decisioning and security features, and clear, concise checklists to make things easier for business customers and bank staff alike.
Fewer fees for better business growth: Because of the precarious position of many small businesses in the face of a global pandemic and a looming recession, owners look to make every dollar count, and that means looking for an account that isn’t going to end up being a drain on their funds. 58% of small business owners want an account that has no fees.
Support and clarity: Running a business can be complicated. There are loans, government programs (which are notoriously detailed and complex), and options that small business owners may not even realize are available. They need a trusted advisor to help clarify their options and support them through decision-making and planning for the future. 77% of small businesses report taking on day-to-day accounting, and so it’s crucial that their bank be on hand to help them navigate these responsibilities.
Just as a business account is beneficial for the business owners, offering this option is similarly beneficial to banks and credit unions.
For one thing, the small business market is huge – comprising 90% of businesses and more than half of all employment worldwide – but remains largely untapped. But even with those numbers, it’s also a market in need. The past two years have hit small businesses hard, and they’re the second-largest group receiving government help. That means banks and credit unions are in a great place to step in and offer stability, advisory, and options.
Offering business options can also help keep current customers and attract new ones. 22% of business owners are considering switching to a new institution, with those who applied for PPP loans to be four times more likely to do so. That’s because they’re looking for a more supportive and comprehensive banking option. But there’s another group of business owners – 42% of them – who consider switching to be too much of a hassle, no matter how unhappy they might be. Imagine the possibilities if your institution offered them the opportunity to switch without the hassle.