Are small firms retail or commercial propositions?

Speaking of corporates being from Venus and banks from Mars, one of the biggest dilemmas a bank seems to undergo is where to put and how to define small to medium enterprises (SMEs).

I’ve seen several banks alternate between treating SMEs as part of their retail business and then ping-ponging them into the commercial banking group.  A few years later, they bounce them back into retail again.  Then they change the categorisations such that an SME below $1 million is retail, then it’s below $10 million, then it’s back to $5 million.

The real difficulty is that SMEs are all treated as one large grouping of companies, and yet they’re all different and they all have different needs.

Some are small one-man band and family firms, that often are fairly self-supporting and manage themselves through friends and family finance.

Then there’s more entrepreneurial start ups that are looking for venture capital and growth.  For these, they don’t tend to deal with banks but go direct to the investment markets.

There’s then the real group that banks own, which are the tiny to small to reasonable sized firms that grind away a decent turnover and use the bank’s lending and credit facilities to cover the harder times.

The banks make a decent crust from this community, but the issue lies with whether all of these firms are retail or commercial bank propositions and at what point do they turn from retail to commercial.

Too often, it’s easy to think of the smaller firms as just needing a retail relationship manager when what they really need is a business development advisor.

Equally, the opposite can be true for a less ambitious firm.

As can be seen, the whole thing is generally confusing and difficult and, as a result, banks are generally difficult and confused in their organisation and structuring for SME focused operations.

Something that hasn’t changed much in my time but the banks keep trying to sort it.

So what is the solution?

The solution is to tailor each bank service to the business as it fits that business.  Some will need to be in commercial focus, even though their turnover is minimal; others will need to be in retail operations, even though their revenues are mainstream.

The former may be a great new Web 2.0 startup whilst the latter may be a family run and supported firm.

But there is no homogeneity.  Just individual companies that need to be treated like individuals.