June 2005 - Small Business News

Are You Still Getting a Raw Deal in Banking?
 

Despite measures taken by the Competition Commission to give small businesses a better deal from banks; new research from the Federation of Small Businesses (FSB) shows that SME’s are still failing to get the service that they deserve.

Neil Hamper of the FSB has commented on the key areas of the findings:

• The top four banks supply over 80% of the market in England and Wales, 90% in Northern Ireland and 95% in Scotland.

“The serious lack of competition in the small business banking market is a fundamental reason why small firms get a raw deal.

• The annual rate of bank switching is 2% for all types of business.  Businesses without qualified financial managers are less likely to switch.

“On average small firms have been with their bank for almost 15 years.  If businesses do not shop around, banks can become complacent.  Most small businesses do not employ a qualified financial manager so it is vital they have access to transparent information about banking products and straight forward explanations of the account switching process.  Only then can they make informed choices between different banking products.”

• One in every three SMEs report that they are not receiving free transactions and / or interest on their current account.

“In 2002 the Competition Commission told the banks they must offer either free banking or interest on current accounts. This report backs up the FSB’s concern that, although the banks may have complied with the letter of the law, they have not complied with its spirit.”

• SMEs pay, on average, £51 in total monthly bank charges.  The average amount charged varies from £26 to £85 but there is little variation in the charges of the big 4.

“Genuine free banking is myth for most businesses.  On average they pay more than £2,500 a year in charges.”

• The median margin on bank debt and overdrafts is 2 points over base, but small businesses and female-owned businesses pay significantly higher margins.

“Women are being penalised because banks charge female-owned businesses more to borrow money than their male-owned counterparts.”

• The average amount charged to credit cards is £433 per month.

“The banking industry should learn an important lesson from the boom in credit card use - businesses want payment methods that are flexible and not subject to 3 day delays.  Credit cards are a convenient method of payment for most business owners, but they can be expensive, particularly for the 1 in 5 firms that do not pay off bills in full each month.”

• Visiting a bank branch is the most frequent method of banking among businesses with less than 10 employees.

“The UK is on the verge of another wave of branch closures.  The report underlines that branches are vital to small businesses – particularly those that are cash dependent.   Hotels, pubs, restaurants, shops, wholesalers and garages all deal with cash and need somewhere to bank their takings at the end of the working day.”

The report shows that SME’s are continuing to be short changed while the big banks make record profits. It appears that many banks are happy to keep giving small businesses a raw deal, especially when many are slow to consider moving their account. Why not spend some time looking at whether switching bank could give you a better deal; a little inconvenience now could save you money in the long run.

Our free article on Opening a Small Business Bank Account can help you to find the best deal for your business.

More information on Internet Banking for Small Businesses is available here