Finances and funding are among the most important services required by small and medium enterprises (SMEs), both to start and maintain a business. However, this is a sector that seldom obtains financing from the banking industry.
This clearly indicates that the financial services sector is not providing the services that SMEs actually require.

Perhaps more worryingly, early findings from SME Survey 2015 indicate that not much has changed in SMEs’ experiences of the services provided by financial institutions.

According to Arthur Goldstuck, MD of World Wide Worx and principal researcher for SME Survey, it is obvious from the results that SMEs are not obtaining the services they need most from banks. However, he adds that even the SMEs themselves have difficulty in articulating what they require from the financial services sector.

“In this year’s survey, when we asked respondents a question around which of their needs were not being met by the banks, we left it open-ended,” he says. “Respondents weren’t given a choice of options, but were expected to come up with their own answers. The answers were quite intriguing, as few SMEs were able to be specific about what services they felt the banks were not providing.

“The majority of responses said they were happy with the services they were offered. However, once we got to the question of where these SMEs actually obtained their funding for starting and running their businesses, banks were missing in action.”

The research showed that banks were the least likely place for an SME to go for financial help. SMEs, says Goldstuck, clearly do not see banks as a source of funding for their business.

“In fact, the single most likely source of funding – as indicated by 57% of respondents – was their own capital, suggesting that the majority of SMEs tend to be used to pulling themselves up by their own bootstraps.

“The next most likely source of funding, indicated by 28% of those questioned, was from business partners, while 10% claimed to obtain funding from family members. Only 2% said that they rely on banks for funding. It is obvious then, that there is a huge disconnect between the banking services used by SMEs and the kind of support that the financial institutions could be providing.”

This is an issue that has been of concern to the financial services sector for some time too, according to Ethel Nyembe, head of small enterprise at Standard Bank.

“The large banks are well aware of the size of the SME sector and the potential market it opens up for us. What we need to be clearer on is what types of services are most in demand from SMEs. SME Survey 2015 will certainly help us to determine how to better develop and position products and services that will suit this market,” she says.

Goldstuck adds that one interesting result from the Survey was that a number of SMEs make use of overdraft facilities that form part of their current account.

“So, in effect, some SMEs are using the bank to fund their business but, crucially, they do not see it that way.

“The results of SME Survey 2015 clearly demonstrate that banks need to become more SME-friendly and, in particular, need to be more funding-friendly. The current scenario for SMEs to obtain funding requires significant organisational resources just to comply with the rules, legislation and red tape involved. This is obviously a huge issue for an SME, so it is obvious that banks need to look to develop and market more SME-friendly offerings in this space.”