Should Banks Offer Financial Literacy for Small Business?

June 7, 2016 | By More
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financial literacy for small businessSome questions are easier to answer than others.  In today’s blog, we address the question, “Should banks offer financial literacy for small business?”  The answer is a resounding “yes.”  Why?  The main reason is that for small businesses, their first partner in their new venture is a bank.  It is also a mutually beneficial relationship.

1.  Banks value commercial relationships because of their contribution to the bank’s profits. Fee income through commercial products and services is collected.  In addition, commercial lending is another area banks of all sizes push to expand for fee income.

2.  Small businesses need a bank to maintain a business bank account to process deposits, provide credit access (credit card, line of credit), merchant services, and other basic conveniences like free notary service.

Small businesses and banks need each other to thrive.   For small businesses, a key driver for their financial success is building a firm financial literacy foundation of knowledge.  In so doing, they are in a position to move forward to more sophisticated topics that impact a small business. After all, unless a business owner has taken the initiative to learn financial literacy on their own, they have likely not received it in school or at previous jobs.  Consider some of the money issues a business owner must manage:

√  Small business budget
√  Managing cash flow
√  Tax planning, reporting
√  Understanding of banking services, products, and fees
√  Insurance
√  Credit management and reporting

I read an article provided by Natale Goriel from the Small Business Administration in which she succinctly and accurately summarizes the reality of financial literacy and small business:

“Financial literacy for small business owners is imperative to making sound business decisions in an environment where financial services are often handled in-house. The success or failure of a small business in its early stages is often dependent on the financial capability of the enterprise’s leadership.” (1)

The argument as to whether banks should offer financial literacy education for small business is conclusive.  Numerous “big” banks provide a wide range of financial literacy support to both consumers and small business.  The challenge is for more community banks to mid-size financial institutions to institute whatever financial literacy approach works for them.  Although this segment of the banking industry participates, it’s not to the extent that could be done.  The good news is there are emerging strategies, tactics, and resources available to really make a dent in financial literacy for small business.  Let me share one resource for banks I was reviewing recently.  And, best of all, this resource is free to banks!

Elizabeth Ortiz, Deputy Director, Consumer and Community Affairs with the FDIC Division of Depositor and Consumer Protection talked about the fifteen year anniversary of the FDIC’s launch of their Money Smart program.  In the Money Smart News – Winter/Spring 2016 issue, she refers to the Money Smart for Small Business program.  It is a tremendous program designed to be a turn-key for bank representatives to use.  Consider the following points:

√ The instructor-led curriculum was designed in partnership with the SBA (U.S. Small Business Administration)
√ Program covers topics related to starting and managing a business
√ Program consists of 13 modules
√ Courses can be taught in any order or independently in 60 to 90 minutes
√ “Each module includes a fully scripted instructor guide, participant workbook, and PowerPoint slides.”
√ Spanish version is now available

The exciting part for banks is they can become a Money Smart Alliance Member. The benefit for a participating bank is:  “The FDIC “facilitates collaboration between the MSSB Alliance partners through a quarterly online town hall to discuss experiences with the training and share best practices for improving effectiveness.”

The FDIC’s Money Smart for Small Business program is one of numerous resources available to banks to jumpstart a financial literacy program at their institution.  The above-reference resource from the FDIC is a terrific place to start.

We encourage you to share the information discussed in today’s blog with your banker.  As consumers and business owners, we need to ask our bank representatives to tell the management team we want workshops, town hall meetings, and detailed articles and information to help each of us be financially successful.  For small business, a bank really can ramp up its service to the community by supporting the business sector via a multi-faceted financial literacy program.  And strictly from a ROI perspective for management, a thriving community means increased business growth and a more profitable bottom line for the bank’s balance sheet.

To wrap up today’s discussion, we have provided links to several other blogs related to this topic that that bankers will find helpful.  In addition, we have several articles in our Tips to Read for business owners.  There is tremendous empowerment in having financial literacy knowledge to manage a successful business.  Since banks and small business need each other, it certainly makes sense to work together.

Tips to Read:

Financial Literacy Tools for Small Business Owners, by J. William Carpenter, January 18, 2016, Investopedia.com

Small Business Financial Literacy Toolkit, Florida Institute of CPAs

Homework:

American Banker – Banking for Small Business and Financial Literacy

IBA: The Financial Literacy Committee

Endnotes:

(1)  Small Businesses Get a Leg Up with Financial Literacy, by Natale Goriel, Small Business Administration

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Category: Banking, Community Banking, Entrepreneur, Financial Literacy, Money Tips on the Web, New to Banking, Small Business

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