Small and medium-sized businesses (SMEs) make up a vital part of the UK economy. We ignore them at our peril. They make up ninety-nine per cent of all private sector enterprises and together generate a turnover of £1.6 trillion – that’s close to half UK Plc’s turnover. They also provide sixty per cent of jobs in the private sector and are a key part of opening up new markets and driving economic growth.
I work for the largest retail and commercial bank in the UK. Our network of around 2,000 branches is right where SMEs are, in local communities across Britain. But being there isn’t enough to make you the bank of choice for SMEs. You only do that by ‘walking many miles in their shoes’ — for as long as it takes to really understand their businesses, their markets, their competitors, aspirations and limitations. The more intertwined in their worlds we are, alert to every opportunity and risk, the better service we provide.
Most of the bankers I know love working with SMEs for all the reasons above. They relish the opportunity to move beyond the traditional Bank Manager role and become trusted business advisors for clients who are very often their neighbours in the local community.
Of course, it wasn’t always this way. Even before the financial crisis, most UK banks had fallen into the trap of one-size-fits-all banking, centralised in head offices — everything that doesn’t work for SMEs. Perhaps too many assumed that the UK was one homogenous market, forgetting that it’s actually made up of hundreds of very different micro-economies with a multitude of needs.
In addition, the financial crisis knocked ‘good banking’ back some distance and knocked the confidence out of many SMEs. Only now is this confidence coming back.
The good news is, many lessons have been learnt from the financial crisis. It prompted a collective ‘pause for thought’ across the banking industry. It made us explore the purpose of our business and seek ways to do more. More than ever, large businesses have an economic and social responsibility to support SMEs in identifying opportunities, achieving growth aspirations and managing their risks. This support could be both financial and non-financial. Financial support is primarily around supply chain management where products are designed to improve working capital flows for smaller businesses who really need to receive payments on time.
Additionally, an increasingly popular type of non-financial support is business mentoring. Many of my colleagues now volunteer their time as business mentors, work for charities or actively support community causes – and our high street presence across the UK and close relationships with millions of SME owners (who are often community ‘movers and shakers’) put us in a great position to do more.
Lloyds Banking Group recognises that the narrow business models previously pursued across the industry are no longer viable. Pure profit measures are giving way to ‘prosper’ metrics, evidenced within Lloyds through the launch of our Helping Britain Prosper Plan, which includes public commitments to deliver longer-term benefits for all those who come into contact with our business, not just shareholders, including of course, SMEs.
It’s a good plan, and we are acting on it. Since the financial crisis, Lloyds has increased lending to SMEs each year, including a 5% increase last year against a contracting market. But we can and must do even more for SMEs. I’d like to see a much stronger focus on partnership-building: banks using their position in the UK economy so that small, medium and big businesses all benefit from working together more effectively on all aspects of business, whatever stage they’re at.
A closing thought: my hopes for the SME banker of the future. Our bankers will be transformed from loan providers into broader business advisors, helping to deliver the best solution to meet the financial requirements of the SME, in it for the long-term, well briefed, not just on money-matters but also risk management and how best to manage the longer term issues for SMEs in areas such as sustainability and resource scarcity.
These bankers are never complacent or condescending. Instead, they work non-stop to do more for their SME clients, to become their ‘preferred’ partner. Bankers they can trust.
Andrew Bester is Group Director and CEO of Commercial Banking at Lloyds Banking Group.