Banking Circle study finds SMEs were borrowing funds to pay business costs even before COVID-19

Banking Circle has found that nearly two thirds (64.6%) of online merchants have needed extra finance in the past two years (excluding borrowing due to the current COVID-19 crisis).

Furthermore, the Europe-wide research commissioned by the financial infrastructure provider revealed that nearly a quarter (23%) needed the additional funding to cover payroll, and a further 26.5% to cover regular business costs. Whilst needing to access extra funds is a fact of life for many businesses, the Banking Circle research highlights the gap in how easily and quickly funding can be accessed – which will be all the more crucial in the current climate.

Just under a quarter of respondents had to wait between three and four weeks to receive the cash they needed to cover essential costs, yet 26.4% felt that without access to new cash they would be forced to let employees go. And almost a quarter (24.4%) believe their business would ultimately fail if they were unable to access new finance.

Key findings:

Cross border banking is a challenge

• Across EMEA an average of 19.2% of online merchants have separate banking relationships in every country in which they operate – adding to their costs and resources to manage;
• 17.2% of UK merchants have separate banking relationships in every country in which their business trades;
• 44% of UK merchants work with just one bank for all the countries in which the business trades;
• 26.2% of businesses in the Nordics are the most likely to work with separate banks in each jurisdiction;
• 13.9% of French merchants work with multiple banks;
• 20.3% of Netherlands firms work with multiple banks.

Banking services used by online merchants

• Around half of online merchants surveyed said they use short-term loans (47.8%), overdrafts (49.1%), and finance agreements for specific purposes (48.8%);
• 43.2% access settlement accounts for cross border payments (43.2%) from their main bank;
• 35% use their bank for foreign exchange (FX) services (35%);
• German merchants are least likely to access solutions to help with cross border trade, with the lowest proportion of all respondents accessing settlement accounts (38.8%) and FX (16.8%).

Accessing finance – how long does it take?

Online merchants reported that accessing business finance had taken them as much as 6 months:

• 18.8% said it took 1-2 weeks;
• 24.6% - 3-4 weeks;
• 21.7% - 1-2 months;
• 16% - 3-4 months;
• 6% - 5-6 months.

The opportunities for fintechs and payments businesses

• 87.3% feel their business is well served by their current banking partners; German merchants are the least satisfied at 82.9%;
• 42.6% of the dissatisfied businesses felt their business is not a priority for their bank, and 41.5% gave high fees as a reason.

Approximately one in four respondents dissatisfied with their bank gave each of the following reasons for their dissatisfaction:

• poor quality and inconsistent service (28.7%)
• slow response times (28.7%)
• poor FX rates (24.5%)

The research was conducted by Censuswide between March 30, 2020 and April 7, 2020, amongst 1,514 respondents from merchants that trade online and respondents who work in the finance department in companies that sell digitally. The SME merchants surveyed were based in the UK, Germany, France, the Netherlands, and the Nordics.