Raddon Research Insights. Small Business Insights: Technology Fueling Growth

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1 Small Business Insights: Technology Fueling Growth

2 Contents Executive Summary 3 Introduction 4 Small Business Outlook 5 Small Business Lending 10 Loan Anticipation 13 Alternative Online Lenders 17 Selecting a Loan Provider 21 Attitudes Toward Borrowing 23 Small Business Deposit and Checking Accounts 26 Business Deposits 26 Checking 29 Business Services and Delivery Channels 38 Business Services 38 Delivery Channels 40 Digital Channels 41 Expedited Payments 50 Branch Interactions 51 Competition for PFI 54 Summary 65 Survey Methodology 66 About Raddon 67 2

3 Executive Summary As financial institutions continue in their efforts to attract new clients and keep their current customers, they should be careful not to overlook small businesses. With small business sales, profits, and hiring numbers on the rise, this segment may be in the market for products and services to help them maintain and grow their companies. Financial institutions that understand the needs of these potential clients and gear their messaging and offerings to them may be able to earn their business. This report analyzes the results of a survey of 1,200 small business decision makers. Their perceptions, preferences, and intentions reveal what small business owners are looking for in a financial institution including accounts, services, loans and how they re likely to use them. Topics addressed include loan anticipation trends, interest rate expectations, online and mobile banking preferences, and the use of ancillary services such as expedited payments. 3

4 Small Business Insights: Technology Fueling Growth The small business market continues to represent significant opportunities for financial institutions looking to diversify their earnings and balance sheets. As small business optimism recovers, the prospects for financial institutions increase as well, as small business owners look for assistance in growing and running their businesses more efficiently. Publication Date: December In an effort to arm financial institutions with the knowledge and research needed to attract and retain small business customers, Raddon recently surveyed financial services decision makers at 1,200 small businesses with up to $10 million in annual sales. The body of data was collected in August 2017 and was weighted to reflect the nation s small business demographic composition. A number of specific topics are explored in this report, including: Small business sales projection trends Perceptions on the state of the economy and economic expectations Projected use of products to support business growth Loan anticipation trends Interest rate expectations Use of and expected use of nontraditional alternative lenders Online account opening trends Areas in which small businesses plan on deploying excess capital Small business deposit use and trend line for new deposit needs Reasons for moving checking account to a different institution Use of ancillary services such as expedited payments Monthly transaction channels used by small businesses Mobile banking usage trends and desired functionality 4

5 Online and mobile banking device preferences Influence and role of the business banker Primary financial institution (PFI) and satisfaction trends Impact of technology resources on decision to use one financial institution over another Trends toward disruption and willingness to explore alternative financial services providers Small Business Outlook Small businesses continue to remain optimistic regarding the state of the economy and the prospects for future sales and growth. Similar to sentiments expressed in 2016, two out of three small business owners expect their sales to increase for the current fiscal year relative to last year. Only 5 percent anticipate sales declining, with the remaining 30 percent of firms expecting sales to remain the same as the prior year. As shown in the chart below, small businesses have been optimistic in their sales projections for the past five years. Sales optimism has stabilized from the more challenging years immediately following the end of the recession. Figure 1: Sales projection trends 70% 66% 65% 60% 58% 58% 50% 52% 51% 40% 30% 42% 31%30% 35% 20% 10% 0% 19% 19% 15% 11% 6% 5% 3% 5% Expect Increase Expect Decrease Source: Raddon Research Insights 5

6 Of the group of businesses expecting their sales to increase, nearly one-half (47 percent) anticipate modest increases of less than 10 percent. Another 39 percent of this optimist group expect increases of 11 percent to 20 percent, with the remaining 15 percent anticipating large increases of more than 20 percent. Larger firms tend to be more optimistic with their sales projections than smaller firms. Three out of every four (75 percent) small businesses with at least $2 million in annual sales expect sales to increase. This compares to only 53 percent of businesses with less than $100,000 in annual sales expecting increased sales in the coming year. Figure 2: Sales expectations vary based on the size of the business Sales expectations by size of the business (annual sales) 80% 75% 72% 70% 64% 60% 53% 50% 40% 30% Interestingly, businesses headed by younger owners also tend to be more optimistic regarding future sales prospects. More than three-quarters (79 percent) of businesses led by a Millennial (those born between 1979 and 1999) expect their firm s sales to increase. Gen X and Baby Boomer fronted businesses are still optimistic, but not to the same level as their Millennial counterparts. Specifically, 64 percent of Gen X-led businesses expect their sales to increase over prior years, with 55 percent of Baby Boomer-owned businesses expressing the same sentiment. Sales expectations correlate closely with overall views on the current state of the economy. While 32 percent of small business owners are still feeling the effects of the recession, that sentiment has continued to decline from the 44 percent in 2014 that felt there was still no evidence of the recession ending. On a positive note, 31 percent of small businesses definitely see evidence that the economy is improving, with another 28 percent beginning to see signs of improvement. Collectively, small businesses are more optimistic regarding the current state of the economy than the general consumer population. While 59 percent of small businesses see signs of economic improvement, only 38 percent of consumers shared that sentiment in Raddon Research Insight s 2017 surveys of U.S. consumers. 20% 10% 0% 9% 6% 3% 2% <$100K $100K $499K $500K $1.9M $2M $10M Increase in Sales Decrease in Sales Similarly, small businesses are more optimistic in their near-term view of the economy. While only one in five (20 percent) consumers anticipate economic improvement over the next six months, 43 percent of small businesses expect the economy to improve over this same period of time. Source: Raddon Research Insights 6