By Kate Young
By now, many bank marketers have heard the compelling case for integrating financial wellness into their offerings. The idea is that when targeting retail customers, financial wellness programs provide an opportunity for banks to differentiate by forming trusting, long-term relationships with account holders. Aimed at bank employees, financial wellness programs create value for HR—plus, they provide a foundation for building better bankers. Financial wellness, in fact, was one of the dominant themes of FinovateSpring 2018, eclipsing perennial fintech topics like blockchain.
What does all that mean for the small business banker?
More than you might think.
A new report from the Center for Financial Services Innovation documents the ways personal financial health affects entrepreneurship and small business ownership. Citing U.S. Census Bureau statistics that tally some 27 million U.S. “micro-businesses” (zero to four employees), the report explores the gap between the type of financial services needed by these embryonic businesses and what’s currently available.
Turns out the rumors are true: Individuals with suboptimal personal financial health have a harder time starting a small business. And once they’ve launched a business, they struggle to keep it going through lean times. These challenges can be especially acute among women and minorities, who are starting businesses at higher rates than ever.
Further complicating matters, the personal financial health needs of a small business owner are distinct from those of a traditionally-employed consumer. So the standard financial wellness tools and services that work for retail consumers don’t work as well for the “micro-entrepreneur.”
The CFSI report identifies four specific financial health needs of small businesses:
- Manage personal and business income and expenses separately
- Protect personal savings to support resiliency
- Establish, build, and maintain a prime credit score
- Plan for personal and business volatility
While the report identifies certain nonprofits and fintech firms that are beginning to address some of these gaps, the question remains open: What more could banks be doing?
Financial wellness as a path to better small businesses—and better small business banking.
Consider the realities faced by micro-business and startup owners. Frequently, they use personal and family funds to get started, when their credit as a business has not yet been established. Personal and business expenses are often mingled, which makes it difficult or impossible to take advantage of tax deductions. Some would-be entrepreneurs have a low income and they may even be unbanked or underbanked. In addition to a lack of capital and credit, micro-entrepreneurs often continue to work their day jobs while trying to get the business off the ground.
This is a population that could use some good advice from a banker.
Of course, not every bank can replicate the types of solutions offered by the non-profits and fintechs listed in the CFSI study. But while you sort through possible ways to promote financial health among your small business clients, you could start by defining how your bank can address certain critical needs.
For example, do you offer:
- An easy way to open business accounts and take advantage of micro-savings opportunities?
- Business and personal accounts tailored to the needs of small business owners?
- Access to capital that allows entrepreneurs to avoid dipping into personal and family savings?
- Support in planning for volatile personal and business income and expenses?
- Help identifying and correcting specific credit issues that preclude business loans, with the goal of making the entrepreneur creditworthy?
- Counseling on how to access affordable, high-quality products that will help entrepreneurs further build credit and ultimately qualify for lower rates?
- Integration of loans into wealth-building programs that allow the lender and borrower to take a holistic approach to the banking relationship?
- Leadership, financial literacy, entrepreneurship training/networking aimed at a niche market?
- Financial planning that integrates personal and small business financial advice?
- A small business accelerator?
These are just a few of the potential opportunities to integrate financial wellness concepts into a small business program. CFSI points out that further research is needed to identify the types of solutions that will be most effective in advancing a positive outcome for small businesses. And partnerships with non-profits and fintechs may be necessary to scale some of these solutions. In the meantime, it’s important not to lose sight of the many community and economic benefits of a healthy small business ecosystem—and the fact that healthy small businesses make for better bank customers.