SMEs are being ripped off when it comes to business banking - here's why: Richard Davies

Business banking is broken – particularly for SMEs. At best, they are underserved. At worst, they are systematically ignored or ripped off.

SMEs typically receive savings interest rates which are 2 per cent lower than big businesses, and many receive no interest at all on cash sitting in savings accounts – just because they are a small business.

To put it simply, big banks don’t have any motivation to prioritise SME business banking customers.

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Whether it be the removal of local experts and specialised managers who understand small business needs, or simply ceasing to offer SME-focuses products and services, big banks do not cater for these customers.

Richard Davies shares his expert insightRichard Davies shares his expert insight
Richard Davies shares his expert insight

It’s just one of the many ways Yorkshire’s SMEs struggle to compete on a level playing field. And it’s why we built Allica Bank to solely serve SMEs – especially those crucial established mid-sized firms (typically with five to 250 staff).

Although they account for less than 5 per cent of all SMEs, this group of established firms drives a disproportionate amount of economic activity, accounting for around a third of all jobs and GDP for the whole UK economy.

But it’s not just limited banking that is stopping businesses from reaching their potential – Yorkshire’s finest included.

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As a recent roundtable with this publication reiterated, SMEs across the region are continuing to experience an array of barriers to growth – no matter their size, specialism or sector.

Uncertainty, finding talent and retaining it, cost pressures, and unintended consequences of regulation are all weighing down local businesses of all sizes. And as the UK faces the dawn of a recession and an upcoming general election, cause for concern is rising.

But there’s something to be done. And that’s listening. Not by us, but by politicians and any incoming government.

As simple as it sounds, SMEs are often omitted or ignored in policy making.

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Big business has a louder voice and a bigger material impact on the UK’s balance sheet. Because of that, decisions are undoubtably big business first, everyone else second.

The Prudential Regulation Authority’s recent consultation is a primary example. In short, the proposals largely ignored SMEs, with no specific research conducted into the impact of the proposed reforms on the potential price and availability of finance for SMEs. The proposals could put tens of billions of pounds of SME lending at risk, though we know the regulator is seriously considering the detailed feedback provided, and hope they make a range of sensible changes in the final policy.

The SME economy – the ‘real economy’ – needs to feature far more strongly in our debates SMEs account for roughly 50 per cent of the UK economy. And while only 3-4 per cent of bank assets is lending to SMEs, that 3-4 per cent underpins our economic performance.

Business organisations like the Federation of Small Business do great things in allowing sectors to cut through some of the noise, but it’s not easy being heard while big businesses receive the lion’s share of media, regulatory, and government attention.

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Given the value SMEs bring to not just the economy but to communities across Yorkshire and the rest of the UK, government – whether new or old – needs to come to them from the top down and recognise their priorities.

It’s vital that businesses of all sizes are heard, and Allica will keep banging the drum for SMEs and the real economy that underpins it all. Because pull out this brick and the tower will fall.

Richard Davies is the CEO of Allica Bank

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