Smaller businesses are switching banks at a higher-than-normal rate, according to a survey from Greenwich Associates.
During the last 12 months, about 16% of small and midsized companies have switched lending providers, higher than the industry's historic average of 10% to 11%, according to the Greenwich survey. Disappointment with their banks during the pandemic has been a driver for the increase.
More than one-in-five companies say their satisfaction decreased with their bank during the pandemic, and 85% of those are either actively seeking a new bank or are open to solicitations, the survey found.
In general, customers have shifted to smaller banks from bigger banks, partly because the largest banks could not handle the unprecedented service demand that spiked during the early days of the economic fallout from the COVID-19 pandemic, Greenwich managing director Chris McDonnell said.
"One bank executive said it was like trying to funnel Niagara Falls through a straw," McDonnell said.
Some business owners have switched to a smaller bank after a negative experience trying to apply for a Paycheck Protection Program loan at larger institutions. The moves helped fuel commercial-and-industrial loan growth at community banks and enabled the smaller players to take some overall lending share from bigger rivals.
McDonnell said banks will not retain all of those new customers, but he thinks they will have about one year from March to solidify the relationships.
The results of the survey came in Greenwich's latest Market Pulse report, an ongoing research series that addresses issues facing U.S. small and midsized companies and their banking relationships. To conduct the research, Greenwich contacts companies with annual revenue ranging from $1 million to $500 million. Greenwich is part of CRISIL Ltd., which, like S&P Global Market Intelligence, is owned by S&P Global Inc.
The results also found that business owners and executives have turned optimistic about economic sentiment after previously reporting pessimism stemming from the pandemic. The Greenwich Optimism Index showed a net score of 14 for the September results, up from negative 22 in the April results. A positive score indicates that the majority of respondents expect economic growth, not deterioration, in the six months ahead. The change marks a "big swing," McDonnell said.
"People are starting to understand the course of the virus," McDonnell said. "They're seeing resilience in the market and the significant role of the government in stepping to support small businesses."
The results also show that businesses are putting more emphasis on digital offerings from banks. A total of 35% of the respondents said better online banking capabilities or services were among the top three considerations when switching banks, up from 25% in July 2017. During the same time span, the percentage of respondents selecting "higher-quality relationship manager" dropped to 25% from 42%.
Of the companies that made a switch in the last year, the top reason for the move was disappointment with bank relationship managers over pandemic-related issues. Loan forgiveness and flexibility on loan terms and conditions was the most often cited consideration businesses gave when hiring a new bank, Greenwich said.