The rate and pace of innovation has democratized technology for small businesses, enabling them unprecedented access to advanced capabilities. And yet, how to finance those investments is still a critical question that business leaders need to address. Finding the right solution requires financial partners with industry and domain expertise, advising you on the options and providing capital at a competitive rate.
While previously, technology investments required expensive hardware, today cloud computing, open source programming, mobile devices and wireless connectivity, and subscription pricing models give businesses of all sizes an opportunity to access solutions more efficiently. Back when technology for business was built around expensive hardware, small and mid-sized businesses (SMBs) couldn’t compete with enterprises that had the financial resources to deploy the latest technology and sufficient scale to benefit from it. That dynamic has changed as technology has been democratized by cloud computing, open-source programming, advancements in mobile devices and wireless connectivity, and pricing models that give businesses of all sizes an opportunity to access solutions on an as-needed basis to increase efficiency and/or fuel growth.
That individual technologies are less expensive is a double-edged sword for SMBs because both B2B and B2C customers now take advanced technology for granted. Trained by deep-pocketed companies that have invested in artificial intelligence (AI) and machine learning, consumers simply expect seamless delivery of e-commerce purchases wherever and whenever they want, search engines that read their minds, chatbots indistinguishable from humans, and individualized communications and offers.
As traditional capital expenditures on technology are increasingly replaced by subscription fees and licenses, SMB decision makers are swamped by the ways they can spend money on digital solutions. Meanwhile, their businesses cannot neglect other critical investments, from new equipment or machinery to additional locations or hiring.
Decline of local banks challenges SMBs
As SMBs look for funding for digital transformation and growth, however, the obstacle remains the same. How do you optimize your cash and sources of capital to ensure sustainability and longevity? Relying solely on your traditional bank may limit your liquidity options, flexibility, and overall, profitability.
Sources of capital are increasingly difficult for small businesses to secure, however. Small commercial banks have seen their ranks shrink in recent decades while the biggest banks have grown. Between 2008 and 2018, the number of commercial banks with less than $1 billion in assets shrank 38% to 4,074, while those with less than $100 million in assets fell 60% to just 1,165, according to the Federal Financial Institutions Examination Council.
By virtue of their sheer size and breadth, giant banks ($50 billion or more in assets) have a larger share of the SMB loan market at 39%, but banks with less than $1 billion in assets have been able, collectively, to shoulder an impressive 26% of the country’s SMB loans. And because they know the businesses in their communities, they often can be more flexible and accommodating when extending financing. When SMBs apply for funding, smaller banks are almost twice as likely to approve them. According to the Biz2Credit Small Business Lending Index, small banks approved half of the SMB loan applications they received, while banks with assets of $10 billion or more approved only 27%.
Managing liquidity remains a number one priority for small businesses. In early 2019, the Harris Poll conducted a survey of small business owners across the globe on behalf of Salesforce; SMBs were defined as having fewer than 200 employees. More than half of respondents (59%) said money/access to capital was a major, substantial or moderate constraint on their business activities, and 68% said budget constraints were a moderate, major or critical challenge in adopting new technologies. Although only 8% of the SMBs surveyed are currently using AI, 46% of company leaders believe their businesses are ready to use it.
Pitney Bowes steps up with Wheeler Financial
For decades, Pitney Bowes has been providing commercial lending opportunities and solutions to its customers through its Financial Services division and FDIC-insured Pitney Bowes Bank. Recognizing how the decreasing number of local banks is having an adverse effect on SMBs beyond its customer base, Pitney Bowes has extended its services into non-captive commercial lending through Wheeler Financial, a new subsidiary launched in March 2019.
"We built this business because there was a significant void in the market," explained Christopher Johnson, president of Pitney Bowes Financial Services. "Small-business lending has declined every single year for the last 10 years in the United States. These businesses don't have access to the critical capital they need to invest in their businesses for growth."
Although Wheeler Financial is a new entity, it’s built upon deep and extensive experience. Pitney Bowes Financial Services currently works with more than 750,000 customers in the U.S. "You no longer have to be a client of Pitney Bowes to take advantage of the great skillset that we have developed to serve the small-business market," Johnson said.
Building personal connections in a digital world
SMBs need more than money; they also need people with the knowledge and experience to help them make financially sound decisions. "There’s no one recipe for success in small business," Johnson pointed out. "What we're talking about is customizing the financing structure that is best for a business based on its individual circumstances." While changes in the way technology vendors are doing business may be new, "accounting hasn’t changed," he added. “That’s why how the deal is structured really matters."
In contrast to many digital-only platforms, Wheeler Financial is also building out a team of representatives, also known as a direct origination channel, that will be physically located in various communities to build relationships with customers face-to-face. "We have over 30 people on the ground, and we plan to continue to invest dramatically," Johnson said. "By the end of the year, we expect to be close to doubling that size."
Johnson exudes enthusiasm for the new venture, noting that SMBs "represent the lion's share of our economy, and they are the backbone of job creation in this country."
The U.S. Small Business Administration Office of Advocacy, which defines a small business as having fewer than 500 employees, has tallied more than 30 million such businesses, which employ 59 million Americans—47.5% of all private-sector employees. Despite their size, SMBs are responsible for two-thirds of net new job creation, as opposed to just one-third for larger businesses.
"Every time I talk to business leaders who are working hard to build out their companies and do right by their employees, I am reminded that we can have a real impact on our society as well as our business," Johnson adds.