Small businesses just want to be understood by their finance provider. And distressed businesses are those most in need of an understanding partner.
In light of this, it’s startling to have the systematic mistreatment of small business customers by RBS’s Global Restructuring Group (GRG) confirmed.
While RBS wasn’t shown to have targeted otherwise viable businesses for asset stripping, the FCA has found that the businesses dealt with by GRG were systematically squeezed for additional income. One in six were damaged by a department designed to help them.
It is disheartening and disappointing that so many businesses were handled irresponsibly. Of the firms that survived their GRG experience, who knows how many were discouraged from looking for support and funding elsewhere, which might have led to long-term growth in income and jobs?
I believe that lack of understanding lies at the root of the GRG case. Banks failing to properly understand SMEs can have extremely damaging effects.
Presenting small businesses with complex financial products that they don’t necessarily understand or need – as was often the case with GRG – is confusing and can undermine trust.
In addition, this misunderstanding makes it more likely that businesses might be sent away with a binary “yes” or “no” taken from a balance sheet snapshot, without the bank taking time to listen to the story behind the numbers and making a considered decision.
Ambitious businesses will always look to exploit new opportunities and take calculated risks that could deliver growth. At some point, they will almost certainly need support in the form of capital in order to carry out those plans. It should be the job of finance providers to work with these businesses, building constructive partnerships that give both parties the confidence to attain success together.
New opportunities are bound to present themselves to businesses nimble and prepared enough to take advantage. Exports are just one example of the potential that could be waiting to be unlocked, especially with Brexit on the horizon.
But in a recent Growth Street survey of more than 1,000 businesses, two thirds of respondents said they don’t currently export goods or services outside the UK at all. Finance providers should be looking to help drive change here.
Funding for SMEs since the financial crisis has remained stubbornly low, despite five years of support by the government’s Funding for Lending scheme. I believe some part of this funding gap is driven by businesses’ lack of trust in lenders.
In recent years, the alternative finance landscape has rapidly increased in size and sophistication, boosting competition in the delivery of funding. But financial services firms need to work harder to help businesses feel confident that they can access the finance to grow, and to expect that they’ll be treated fairly in good times and bad.
Above all, I think that we can deliver these improvements by demonstrating that, as a financial services sector, we truly understand the businesses we work with. We must not think of the bottom line above all else, at the cost of customers’ long-term success.
Here’s hoping we can use GRG’s cautionary tale to foster a healthier attitude towards our SMEs.