If you are a small-business owner, it is likely you want the best possible financial support. But big banks do not necessarily mean big service.
Small businesses need the backing of a financial institution that understands the problems that come with having little capital and a small staff.
This was the case with a client of Coast Capital Savings. A small-business owner was declined for a business line of credit increase at a big bank, says Danette Harkness, senior manager of small-business banking at Coast Capital.
The member’s financials did not look as good as they should have because her old bookkeeper had embezzled a large sum of money, for a small business.
So she switched to the credit union.
Get a bank that listens
After investigating the small business’ financials, Coast Capital recommended that the company get a small-business consolidation loan to combine all the debt into one payment, says Harkness. They then set up a new line of credit with a limit that matched the client’s receivables, so she could have a better sense of her collections and outstanding invoices.
The client reported feeling listened to by the credit union, and not judged for what had gone wrong with her business. This strategy put her in a stronger place once the loan was paid off in 18 months.
The local point of view
Credit union money is reinvested back into the organization and the small business’ local community. But big banks’ profits go to the shareholders of the business.
“Those at credit unions who are making the decisions are local,” says Harkness. “They have a better understanding of the market area and can actually go to the place of business.”
Credit unions are also owned by their members, rather than by shareholders.
“We’re able to provide better value since we’re not trying to maximize shareholder profit,” says Harkness.
Small businesses are a trend
According to a BC Stats report on small businesses, as of 2016 there were 243,000 small businesses in the Mainland/Southwest region of B.C. Ninety-eight per cent of all businesses in B.C. have fewer than 50 employees.
“I’m worried that small business is the ‘hot’ thing right now,” says Harkness. “So there does seem to be a lot of new offers from large banks. However, I’ve also seen their small-business departments disbanded or shrunk to little support – even asking customers to move.”
Harkness is unsure large banks are willing to back small businesses for the long haul. She says that in the end, this will hurt the client.
Challenges unique to small businesses
Working capital is most often the No. 1 financial challenge for small businesses, says Harkness.
“A small business may not have had the chance to save up six months of expenses as working capital due to its structure and other needs.”
A large company may have a head office that has the ability to come in and assist businesses during challenges. But small-business owners need to solve problems on their own.
Smaller businesses often don’t have the same negotiating power to delay in paying their bills. Big companies have much more flexibility, as their buying power is much larger, says Harkness.
Your financial institutions should be concerned with the big picture
Credit unions want to add value to the client’s business, rather than products and sales, says Harkness. They tend to be a part of the business’ support team, rather than considering them to be just a client.
“A small business’ success is important to us. They are the ones keeping our economy strong and putting back into their communities.”