But more than anything, what is it that borrowers are really seeking from a working capital solution? Is price everything, or do they simply want a fast and efficient option that can help them to manage their business finances?
We interviewed around 100 businesses each in five key markets – the UK, USA, Germany, France and the Netherlands – and here’s what we found.
Putting Price First?
When we asked respondents which of eight factors would be most important in guiding their choice of a working capital facility, low rate or price was cited by most as the decision-making issue.
More than one in five (22%) business borrowers said it was critical. This included 26% of business borrowers in Germany, as well as 24% in both the UK and USA. Meanwhile, nearly two thirds (61%) of all business borrowers said they chose receivables finance because it offered the best rate.
As interest rates start to rise around the world and we leave the low-rate environment of the last decade, we could see price dominate yet further as the key decision-making factor for borrowers.
Speed, Service And Relationship
Yet, our research shows that price might not be everything for borrowers. Just 13% of all respondents would always borrow from a lender offering the lowest interest rate, while only 17% said they would borrow from any lender if the price were acceptable. This suggests there is significant scope to differentiate working capital products and services in other ways.
In fact, 17% of borrowers put the speed at which they receive funds as the most important issue. This was echoed by the expectations amongst customers as to when they’d receive funds. Across the whole sample, businesses were most likely to expect to receive funds within one week, but a substantial minority expected them within 48 hours. Respondents in the UK, the USA and Germany were particularly likely to expect to receive funds this quickly.
Service too was a significant matter - 18% cited a great customer service as the number one factor.
The findings suggest that a provider promising good prices, good service and perhaps a fast access to funds could be better placed than those offering the lowest rate on the market. If borrowers assume it is impossible to get both the best price and the best service at the same time, it may be that a provider that can get close to achieving this will be particularly well-placed to attract new customers.
John De Pledge, Business Head at Valley National Business Capital, a division of a US based bank, says: ‘Clients today will often look for the lowest cost provider of capital, but service and relationship are also important. Why do people pick a particular lender? It’s for the whole picture of price, certainty of execution and relationship. When the times are good, it’s easy to maintain those relationships, but when a downturn happens, clients want to know whether you’ll be there to support them or if you’ll take advantage of their situation.”
Meeting client needs
Clearly competing to offer the lowest price isn’t the only issue banks and other lenders need to focus on. Instead, demonstrating their commitment to clients, understanding their sector and being there to support them during challenging times is growing in importance too. But what steps should providers take to respond to these key needs of business borrowers?