Growth Strategies

Bank Shots: Small Firms Often Eager to Switch

Survey shows that nearly 50 percent of the smallest companies, and 40 percent of mid-sized ones, are actively pursuing a new bank, or might do so. ...
Stephen TaubJanuary 7, 2009

Almost half of small and middle-market companies are actively seeking a new bank, or would consider switching banks if presented with a compelling offer, according to a survey from Greenwich Associates.

At the end of 2008, nearly 50 percent of small businesses in the survey, and 40 percent of middle-market companies, were seeking or open to finding a new bank. Greenwich sampled 410 mid-market firms and 260 small businesses — counting annual sales of $1 million to $10 million as small, and $10 million to $50 million as mid-sized.

The percentage of companies interested in changing banks is way up from the beginning of 2007, when less than a third of companies participating in the so-called Greenwich Market Pulse said that they were actively seeking a new bank or considering a switch.

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In addition, only about half the executives of small businesses and mid-market outfits believe that their bank is doing a good or excellent job of communicating with the company, according to the survey.

The research firm pointed out that in past years companies switched banks mostly due to price or service issues. These days, though, the reasons for bank switches are different, with the most common being to obtain more flexible terms and conditions (cited by 48 percent of small companies and 51 percent of medium-size companies.) Companies also seek a change if they perceive a lack of demonstrated commitment to the business, or if they want more reliable access to credit and better cash management, or improved operations services, according to the survey.

Among mid-market companies that changed banks in the past 12 months, a quarter said their original bank could not provide the required services, and 21 percent said their banks failed to give loans or financing when needed.

Almost a quarter of small businesses switching in the past year said their previous bank could have retained the business by improving communication and responses, while another 24 percent said the losing banks should have showed they “appreciate our business and treated us better.”

Said Greenwich Associates consultant Steve Busby, “The risk for banks is that many creditworthy companies are feeling like they’ve been mistreated by their banks, and they are voting with their feet. Companies that are on solid ground see the credit reductions, more stringent terms, and higher fees as punishment they are being forced to take for bad decisions made by the banks or less responsible borrowers.”

The Greenwich Market Pulse is a panel of about 30,000 decision makers at small and mid-sized U.S. companies, surveyed six times per year by Greenwich on various issues.