With interest rate hikes, supply chain issues, talent shortages, and high inflation, it’s a tough time to be a small business owner. According to a CNBC report, almost half of the small businesses say the economy is “poor,” and some even believe a recession is imminent.
As challenging economic situations weigh them down, SMEs seek practical solutions and advice from their banks to navigate the challenges. This is an opportunity for banks to deliver more experiences and real value to their clients beyond the typical financial products.
The Impact of Economic Downturn
Even though up to 66% of leaders are optimistic about this year’s performance, SMEs’ attitudes toward the economy vary as inflation continues to bite. Inflation has forced 62% of SMEs to increase their wages to retain employees, while others have sought new suppliers to cut costs.
About 80 percent of SMEs have passed on some of their increased costs to consumers, raising prices by up to 10%. This is basically a tight line, as they struggle to stay afloat while offering the right customer experiences. Unexpectedly, some have been lucky to have understanding customers when they hiked their prices.
The effort by the Federal Reserve to control inflation by increasing interest rates has increased the borrowing costs for SMEs. Consequently, this has inhibited SMEs’ ability to explore new financing products or take up new loans.
The Role of Financial Institutions
In the wake of these challenges, financial institutions like banks have an enormous opportunity to supplement their typical offerings and show real commitment to their partnerships with SMEs. They need to understand the needs and goals of SMEs and devise ways to support them amid the economic downturn.
Banks can deliver comprehensive advice instead of just transactional advice alone. Comprehensive advice includes:
Making recommendations based on an SME’s interests
Helping them create a documented financial plan
Aligning offerings with their goals and needs
Connecting SMEs with helpful networks and resources
Nurturing great relationships with SMEs is also vital during challenging economic situations. This is an area where relationship managers can be helpful. They can provide advice, resolve problems faster, explain existing products to clients, and break down fee structures for easy understanding.
Areas Financial Institutions Can Deliver Value
The success of SMEs means a healthier clientele base for financial institutions. As such, it’s fair to identify areas you can offer value and ensure SMEs pull through the economic turmoil.
You can offer advice on cash flow management to help SMEs improve their practices in pricing, invoicing, budgeting, etc. Tax planning and compliance are also critical — banks can help small business owners to understand their tax obligations and navigate the tax system.
Economic downturns pose a considerable risk to SMEs, so banks can offer risk management and insurance advice to cushion them and secure their bottom line. More importantly, financial institutions can guide SMEs in leveraging digital technologies to stay competitive and adapt to new economic landscapes.
Empower Small Businesses to Stay Resilient
Small businesses are the backbone of any economy. Unfortunately, they suffer the wrath of economic downturns, which force some of them to shut down. This shouldn’t be the case if financial institutions take up the role of offering actionable and concrete advice to their SME clients.
Banks can guide them in reducing banking fees and making the most of their loans while ensuring a healthy financial profile. They can advise them on technology, taxes, marketing, and budgeting to help them mitigate risks. They can also connect SMEs with networks and resources to support their everyday operations if needed.
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