Financial services providers are one of the most important partners for a small business owner. They support the smooth operation of a business with a variety of products such as checking and savings accounts, and by facilitating transactions such as customer purchases, employee payroll, and bill payments.  

Given the impact of financial services relationships on small businesses’ financial success, it is important to understand the types of providers and products that business owners rely on and why. The Federal Reserve Banks’ Small Business Credit Survey (SBCS) offers valuable insights into these aspects of small business financial services relationships. This article highlights some key findings of special questions we asked employer firms about their financial services relationships in the 2023 SBCS. 

The value proposition of financial services providers to small businesses  

For most small businesses, their primary financial services provider is a bank or a credit union, though some turn to nonbank providers, such as companies that offer payroll services. Regardless of the type of provider, a business owner’s relationship with that institution can be instrumental in sustaining and growing small businesses.  

Financial services relationships can also enable small business owners to access the credit they need during periods of financial stability as well as economic hardship. Small business owners seeking a loan, credit card, or line of credit often turn to their primary financial services provider as the first stop in their credit search.  

Relationships with financial services providers may also serve as important sources of support for owners during periods of financial stress. As an example, existing relationships between business owners and financial services providers proved to be critical for many businesses seeking Paycheck Protection Program loans at the height of the pandemic.  

 Which financial services providers are small businesses building relationships with? 

The SBCS found that small businesses commonly used a bank as their primary financial services provider—most often large banks followed by small banks. Smaller shares of employer firms reported using a nonbank or a credit union as their primary provider. 

Primary Financial Services Provider (percent of employer firms)

Commonly used services by primary provider type 

When it comes to the types of financial services small business owners use, deposit accounts were at the top of the list for businesses that have relationships with banks and credit unions. A large majority (94 percent) of businesses that used a bank or credit union as their primary financial services provider had a deposit account with that institution.  

Alternatively, businesses that used a nonbank financial company as their primary provider had a deposit account with that company just 14 percent of the time. Businesses that used a nonbank financial company as their primary provider were much more likely to use merchant services or payroll processing at that provider than those whose primary provider was a bank or credit union. 

Services Used at Primary Financial Services Provider, by Provider Type
(percent of employer firms at provider)

No matter the provider type, close to half of small businesses relied on their financial services provider for financing like loans and credit lines. Access to financing is important to the success of small businesses, as funding enables businesses to acquire new assets, pursue expansion plans, and manage through periods of uneven cash flow.

Qualities that small businesses value in their primary provider 

While small business owners valued different products by provider type, they also expressed preferences for specific qualities in their financial services relationship. 

Qualities that are Important in a Primary Financial Services Provider, by Provider Type
(percent of employer firms at provider)

Businesses that used small banks and credit unions as their primary providers valued attentive customer service and convenient in-person banking more than those that used large banks and nonbank financial companies. Businesses that used banks or credit unions as their primary provider were more likely to value access to online banking services than businesses that used nonbanks. For businesses that primarily used nonbanks, affordability was the most important quality.  

Partnering for the future  

Small businesses juggle many challenges, access to financial services being just one of them. Based on survey responses, it appears that many business owners are not looking to switch things up. That said, small business owners that use nonbank financial companies were less likely than bank and credit union users to say they planned to stay with their current provider. 

Likelihood of Continuing to use Primary Financial Services Provider, next 12 months, by Provider Type
(percent of employer firms at provider)

Most firms planned to stay with their current primary financial services provider for the next 12 months. Businesses that primarily used small banks and credit unions were the most likely to indicate that they would continue using that provider—with over three-quarters of those businesses reporting that they were “extremely likely” to continue. Fewer than two-thirds of businesses that primarily used large banks or nonbank financial companies were “extremely likely” to plan on staying with their current provider for the next year. 

As small business owners contemplate their futures, their financial services providers can help them thrive as well as survive. Findings from the SBCS suggest that the availability of both online and in-person banking options, attentive customer service, and affordable rates may lead to longer-term relationships between small businesses and their providers. Strong relationships with financial services providers can help small businesses achieve their financial goals and build the resiliency needed to withstand future economic challenges.