Should Small Businesses Skip Traditional Banking?

If you run one of America’s 33 million small businesses, you’ll know traditional banking has long been a source of frustration for the country’s entrepreneurs. 

For example, small business owners revealed in a 2021 CI&T report how much they dislike traditional banking fees. They find them complex and opaque. And, according to the report, they also believe they are being short-changed with interest rates on their cash balances.

Small businesses employ a staggering 61 million people nationwide, according to the Small Business Administration (SBA).

Given this contribution to towns and cities across America, it’s disappointing that owners remain underwhelmed by traditional banks.

The Upsides of Traditional Banking For Small Businesses

But the same report also found small business owners still have high levels of trust in traditional banks. Many business owners have stayed with their banks for a long time. And traditional banks provide advantages such as:

• the ability to grow face-to-face relationships
• wide financial advisory and planning services
• and protections such as federal deposit insurance.  

The Downsides of Traditional Banking For Small Businesses

But traditional banks are run in a way that can make it hard for them to deliver timely support for small business owners.  Many banks have: 

• Older physical bank branches. Running these buildings, maintaining high employee headcounts, and operating legacy technology can all limit a traditional bank’s ability to help you manage your finances effectively.  

• High operating costs. One of the ways banks cover their large operating expenses is by charging businesses various fees for monthly account services, such as transactions, international transfers, overdrafts, and vendor payments. 

What does this mean if you prefer to run most of your business with digital tools and services? Well, traditional banking may slow you down.

In a recent poll, more than half of bank directors admitted business customers must still visit a branch to apply for deposit accounts or loans.

The poll showed 81 percent of banks increased their technology budget in 2022, with many pointing to investments in areas such as cybersecurity and fraud prevention. But the pace of change is unlikely to be enough for founders and small businesses who need a modern way to manage funds — and secure financing — quickly. 

Finding Financing: What Other Business Owners Say

Small businesses like yours frequently voice the need for better access to financing. PNC’s recent economic outlook found 17 percent of business owners expected to seek a loan, or line of credit, in the next six months. But many have concerns. Of the 8 in 10 unlikely to seek credit:

• 8% worry about the process or their ability to qualify
• 16% feel the cost of business borrowing is too high
• 77% say they have no need for fund
• 25% are hesitant to take on debt

Technology has enabled a range of new alternative financing options to provide small businesses with greater convenience and efficiency. Fintech businesses, like Aion, enable online applications, prompt disbursement of funds, and user-friendly platforms so small businesses can secure the services they need to move forward.

3 Alternative Financing Options for Small Businesses

Small businesses can choose from a growing range of alternative financing sources, with new products and providers launching almost every week. Here are three options to consider:

• Revolving line of credit: A revolving line of credit is unlike a traditional loan. Instead of providing you with a lump sum upfront, a lender approves you to draw down funds as and when you need them. Once you’ve fully repaid, the lender makes the same amount available to borrow again. A revolving LOC may be useful for businesses with lumpy or seasonal cash flow, or regular unexpected expenses.

• Invoice financing:  Invoice financing involves borrowing against your accounts receivable. To qualify, businesses usually need at least two years of invoicing history and monthly recurring revenue above a certain threshold. 

• Business credit cards: Business credit cards have evolved a lot in recent years. Now, business owners can choose from a range of credit cards that provide added value, such as cashback, virtual card capabilities, and even expense management software. 

Many traditional banks provide the financing options above too. But fintech lenders may be able to move you from application to answer more quickly, and without the need to visit a branch. 

Explore Business Banking and Financing with Aion

For example, Aion can assist your small business with business banking financing for a wide range of operating expenses. With term loans and lines of credit up to $5 million, Aion can provide the working capital business owners need to pay staff and vendors, purchase inventory and equipment, and invest in important sales and marketing activities. And business owners can manage accounts receivable, accounts payable, payroll, and more - all in one platform. 

Get started with a free business banking account in minutes.