of Entrepreneurship Research
ASSESSING THE IMPORTANCE OF THE RELATIONSHIP BETWEEN BANKS AND THEIR SMALL BUSINESS CUSTOMERS
Martin R. Binks
Christine T. Ennew
University of Nottingham
School of Management and Finance
Nottingham NG7 2RD
Despite the attempts to increase the provision of small amounts of external equity to businesses it would appear that in many countries the 'equity gap' still exists and for many firms applies to project amounts of less than $300,000. The information asymmetries which underpin this problems also have implications for the provision of external funding by banks. Collateral may be one mechanism for reducing information asymmetries, but there are strong arguments to suggest that a more prospects based approach may be necessary to improve the efficiency of financial provision to SMEs. This focuses attention upon the nature of the banking relationship with SME customers and the extent to which this has changed through time in the light of considerable turbulence in the banking industry itself and changing economic conditions confronting the business community.
The relationship between banks and their small business customers has been the subject of a biennial survey of the membership of the Forum of Private Business in the UK since 1988. The nature of this relationship is analysed both in longitudinal format and in terms of the 3,800 plus responses collected in 1996. Analysis focuses upon the relative importance of difference characteristics of bank service and their respective quality as perceived by their SME business customers.
The relationship between banks and small business in the UK has improved quite dramatically in part as the result of improved economic conditions in general but also as a reflection of changing banks strategies when dealing with this market. The perceptions of quality, financing terms and conditions and customer retention are all influenced and related to the quality of relationship.
Rapid change in the banking sector alongside fundamental changes in the conditions confronting SMEs mean that alternative methods of risk assessment will be explored, designed and applied in order to make the provision of external finance to this sector more efficient.
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Last Updated 04/25/98