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The evolving relationship between banks and SMBs

  • In today’s financial services world, SMBs are expecting more from their relationship with their banks.
  • If banks can get it right, they have an opportunity to service SMBs in a more customer-centric way.

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The evolving relationship between banks and SMBs

In the US, small and medium-sized businesses represent over 99% of all U.S. businesses. That is a big slice of the pie and holds a lot of weight. Whether it’s better customer experiences or more user-friendly financial management software solutions, banks are taking notice and this is incentivizing change.

Large banks are shifting their focus to this “overlooked” segment as they continue to embrace new digital technologies and improve their business models. As they go forward, they will need to strengthen their value propositions and give SMBs more attention or risk them turning to other suppliers -- such as community or retail banks, or fintechs, that can meet their finance and servicing needs.

But, what is it that the SMBs really want? Or need?

At the core of it, it’s all about being understood and helped by their financial institution.

SMBs in the US have, and continue, to struggle when it comes to accessing sufficient capital from their banks. As a consequence, they face bigger financing obstacles than larger corporations, such as less access to external financing, higher transaction costs, as well as higher risk premiums. Obviously, and it goes without saying, that is not good for business.

One issue prevalent in the industry stems from the fact that many small businesses don’t conduct mandatory financial audits. This means they often provide the incorrect calculations and information when manually applying for loans.

Another, perhaps even bigger issue, has to do with cash flow management and how businesses project their short-term cash flow to make more informed financial decisions. According to industry stats, an astonishing 82% of small businesses fail due to poor cash flow management.

The truth is it doesn’t have to be like this. At least not anymore.

Lately there has been a ton of new development in B2C technologies which allow banks to underwrite competitive loans to their customers (i.e. me and you), however this hasn’t really been appropriately re-engineered to serve SMBs and their immediate needs.

A study by FIS mentions that one of the main reasons SMBs switch banks is because of “being declined for a loan or line of credit and the inability to customize products or services”. SMBs now are shopping around to find solutions to their woes.

Thus, banks need to focus on creating products and solutions catering to small and medium-sized businesses around the operational issues they face. Besides credit or cash flow problems, this could center around other areas that are time sensitive and plague many companies, such as payroll.

A recent article by Payments Journal explains that a majority of senior banking executives are now recognizing small and medium-sized enterprises as the biggest growth opportunity and are shifting their attention accordingly.

With renewed interest, US banks that are now concentrating on the SMB industry are building up their cloud-based software solutions with back end ERP and front end CRM integrations. They offer dashboards to SMBs to give them more visibility and better understanding of their finances -- all to help them streamline business processes to boost overall productivity.

When it comes to SMBs needs, these factors are the most commonly demanded:

  1. A holistic view and better understanding of their finances
  2. Comprehensive past spending analysis and forecast
  3. Reconciliation with invoicing and accounting platforms
  4. Cash flow prediction and advance invoice payments
  5. Ability to grow business potential via online channels
  6. Tax provisioning to avoid surprises

If banks pay attention and address these pain points for small and medium-sized companies, they themselves would benefit by expanding their portfolios and growing market share across a number of products that are targeted to this sector.

However, before they begin, banks must ask themselves these five vital questions:

  1. Do we really understand what SMBs want?
  2. Are we ready to become an SMB business partner?
  3. Do we fully grasp the scope involved?
  4. Do we have a cross-selling plan ready to go?
  5. How does this fall into the wider changes in banking?

If they answer yes to these questions, then banks are ready to begin offering digital products to their SMB clients. By doing so, they can improve their own underwriting and lending capabilities and empower their SMBs clients to buy, operate, sell, and be in better control of their finances to boost their business performance. They would be the helping hand SMBs desperately need in today’s competitive world.

Many of the benefits that US banks could obtain by offering these digital banking products to their SMBs include:

  1. Better cash flow management
  2. Attract new customers via invoice aggregation
  3. Increased SMB engagement on digital channels
  4. Greater customer loyalty and better understanding of SMB’s needs
  5. Faster time to market, accelerated rate of innovation
  6. Leverage expertise in AI, predictive analytics and UX/UI
  7. Seamless integration with existing systems


Banks have to take advantage of the opportunity to cater to today's SMBs and ensure that they offer them the most innovative, company-centric, results-driven technology to help them get ahead. When that happens, that relationship will blossom and both parties will benefit.

To help US banks innovate and enhance their relationships with SMBs, Strands’ BFM solution offers small and medium-sized enterprise customers tools to manage cash flow, accounts payables, receivables, budgets and provisions -- and are all powered by a layer of AI and machine-learning models. It allows SMBs to predict income, expenses, forecast balances, receive personalized alerts and notifications and recommend products and services that meet the immediate needs of their business.

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