Dealing with a financial institution can be confusing for small business owners, because sometimes you don’t know what you don’t know. Online resource theBankDoctor, managed by former banker Neil Slonim, tries to help time-poor business owners determine their funding needs and receive banking advice. CANSTAR caught up with Neil to find out more about the service and what prompted him to establish it.
Q: What is theBankDoctor and what prompted you to establish it?
theBankDoctor.org is a Not-for-Profit online resource centre that helps small business owners deal with the challenges of funding their business. I established it in 2013 to fill the need for SMEs to be able to access practical, independent and affordable advice on how to deal with their bank.
I am a reformed banker. Leveraging 35 years’ experience on both sides of the banking fence, I run a banking advisory and advocacy practice which acts as “the banker in your corner” for middle sized corporates and large family groups and I also sit on a number of boards and advisory boards.
But I’ve found over the journey that it’s the SME’s that really need, and can least afford, good banking advice. So theBankDoctor is my response to this need. All the resources on the website are totally free as theBankDoctor is funded by my other business activities, which makes me a kind of “banking Robin Hood” in that the better off larger companies effectively subsidise this service for SMEs.
Q: What are the main challenges SMEs face when dealing with banks.
For small business owners there are never enough hours in the day and just finding time to deal with the bank is a big challenge in itself. Others include:
- Finding someone at the bank you can talk to who understands you and your business.
- Trying to figure out how the bank operates. Processes like loan approvals and documentation are cumbersome and make SME’s feel like the bank is making them jump through hoops to get support.
- Being able to access quality yet affordable advice.
Q: Unlike most consumer finance products, the cost of SME business products are often opaque, making it difficult for SMEs to conduct an easy comparison between institutions. From your experience, why are business products less transparent?
The banking needs of businesses are generally more complex than for retail banking. For instance some businesses run on cash whilst others need to fund debtors. Some need to buy stock or raw materials whilst others need to invest in intangible assets like computer software.
The cynics might argue that the big banks have deliberately created these products and the associated fee structures in order to make it difficult for SMEs to make real apples with apples comparisons.
But the pressure is increasing on banks to be more transparent. New competitors, increased regulation and more community focus on the role of the banks in society are having an impact on how banks engage with their customers.
Q: “Digital disruption” is a buzzword at the moment. Do you think the various fintech products being developed at the moment will make the process of accessing cost-effective business banking products easier, or not?
Definitely, this is already happening. In 2015 the new breed of online lenders (there are over 20 now operating in Australia) provided about $225 million in loans to SME’s. Although this is miniscule compared to the total SME lending market of around $250 billion, the trend is undeniable. In my view, the main reasons SMEs are attracted to this type of borrowing are speed of decision making, that the lenders are easy to deal with and they don’t insist on property security. SMEs want a lender who makes life easier, not harder, for them.
These new developments are not just confined to lending. Payments is the other big area in which the banks are under attack from new players like Apple and Tyro.
This is all good news for small business owners, whose options to date have been largely restricted to the big homogeneous banks.
But SME’s also need to be wary. This is a new industry and we don’t know how it will fare in a severe economic downturn or when interest rates finally increase from current historic lows. The non-bank lender sector is not regulated in the same way as the bank sector and the participants are mostly small private companies without the substance, governance and history of the banks. Pricing transparency is another concern.
Meanwhile, the banks are fighting back. They won’t let their customer base be usurped by innovative technology as happened to Kodak. They are very well aware of the threat and are investing heavily in their own technology hubs and in-house programs noting that banks can be disruptors too. At the same time, they are constantly evaluating which new suppliers they should either partner with or even acquire.
Q: How often should SMEs review their banking needs?
People generally conduct a review of their banking arrangements when there is an event, often an unsatisfactory one, for example getting a knock back on loan application. It’s very similar to the way we tend to manage our personal health – we go to the doctor when we are unwell although we know that the best time to go for a check-up is when we are feeling fine. The doctor explains this in terms of “prevention is better than the cure”. The same applies to the banking health of your business. The best time to do a banking health check is when you don’t have any new need of the bank.
And the easiest and quickest way of conducting a banking health check is to start with this simple question “can you assure me the bank is giving my business the best possible overall deal?” You should do this at least every two years, if not every year.