Introduction

There are nearly 32 million small businesses in the United States; together, they form the backbone of the American economy¹. They’ve been responsible for nearly two thirds of all jobs created in the US in the last fifteen years. Today, more than half ofAmericans either own or work for a small business. Perhaps as a result, small businesses contribute 43.5% of US gross domestic product².

Over the last twenty years, the way small businesses serve their customers has evolved considerably. But the way they manage their money is stuck in the 90s.

But running a small business today is more challenging than ever. For example, during the COVID-19 pandemic, 43% of small businesses were temporarily closed, and the vast majority had only enough cash on hand to cover two months of operating expenses. The current economic environment has only compounded these challenges³.

It’s worth noting that, over the last twenty years, the way small businesses serve their customers has evolved considerably. In particular, products and services have moved online, becoming faster, more personalized, and easier to access.

But the way they manage their money is stuck in the 90s. As we’ll see, most still use traditional banks⁴ to manage their finances. Thousands actually manage their business finances through personal bank accounts. Perhaps unsurprisingly, this outdated and inadequate toolset is not meeting their needs or expectations.

In this report, we’ve partnered with The Harris Poll to talk to business owners about the challenges they face. We’ll identify what’s not working about the way they manage their money and how it could be improved. We’ll explore their willingness to try new solutions. Finally, we’ll identify technological innovations that have the potential to provide small-business owners a better experience and offer insights about the road ahead.

Key findings

1. The majority of small businesses use traditional banks to manage their money—and it’s not working for them.⁴

• 100% of small-business owners we surveyed find at least one element of their current business banking solution to be unsatisfactory, with more than a third finding multiple unsatisfactory elements.
• They say that the most difficult tasks are getting the financing they need (70%), integrating with other apps and services (70%), and getting paid promptly (63%).
• Nearly a third say they would rather wait in line at the DMV than apply for a loan from a traditional bank.

2. The current economic environment presents both new challenges and new opportunities.

• 77% of small-business owners are concerned about the impact of inflation on their businesses, with nearly as many (71%) concerned about the potential impact of an economic downturn.
• As a result of the current uncertain economic environment, 62% of small businesses say they are seeking additional financing, and 68% say they need faster access to funds.
• However, many remain optimistic: nearly two thirds say that the current economic environment also creates new opportunities for their businesses.

3. Small businesses are open to trying new ways of managing their money.

• As a result of the current economic environment, 71% of small businesses are more open to trying new banking solutions or financial providers.
• Overall, 84% of small-business owners would be open to getting financial services from companies other than traditional banks—for example, technology companies, e-commerce platforms, and business software tools.
• Affordable loans (51%), instant loan approval (49%), and a single platform to manage business finances (45%) are the top reasons that they would be willing to try a new provider.
• 71% of small-business owners believe they should be able to get a business loan as quickly as they can order something online.

The state of business finances today

The way small businesses currently manage their finances isn’t working for them.

Astonishingly, every single small-business owner we surveyed was unsatisfied with some aspect of their current banking experience. In particular, they called out more affordable loans and faster payments as areas that are ripe for improvement. In fact, their experience was so disagreeable that they said they'd rather plunge a toilet or wait in line at the DMV than apply for a loan at a traditional bank

• 100% of small-business owners we surveyed find at least one element of their current business banking solution to be unsatisfactory, with more than a third finding multiple unsatisfactory elements.
• They say that the most difficult tasks are getting the financing they need (70%), integrating with other apps and services (70%), and getting paid promptly (63%).
• Nearly a third say they would rather wait in line at the DMV than apply for a loan from a traditional bank.

The impact of the current economic environment

Economic uncertainty and volatility present both new challenges and new opportunities.

Over the last 2.5 years, America’s small businesses have faced unprecedented economic challenges. Cash is tight, so they need additional financing and faster access to funds.; in fact, more than a third (34%) expect to downsize staff in the next six months. Perhaps more surprisingly, a strong majority of America’s small-business owners also see considerable opportunity in the current economic moment.

The future of financial management for small businesses

Although the majority of small businesses currently use traditional banks, they’re open to trying something new.

The way small businesses currently manage their finances isn’t working for them, and the uncertain economic environment just makes things worse. As a result, an overwhelming majority are open to managing their finances with a company other than a traditional bank. In particular, they called out affordable loans, instant loan approval, and a single platform to manage all of their business finances as features that would make them likelier to try a new provider.

Spotlight on millennial small-business owners

They’re both more impacted by the current economic environment—and more open to trying new solutions.

Perhaps because they’ve had less time to establish their businesses, Millennial business owners are feeling the impacts of economic uncertainty more acutely than older generations. That said, they’re also the first generation to grow upon the internet—so they’re more comfortable with non-traditional offerings that can potentially address their pain points.

Conclusion

America’s small-business owners are unhappy with the way they manage their money today—and that represents a considerable market opportunity.

As we’ve seen, the vast majority currently hold accounts at traditional banks—and every single small-business owner we spoke with found some aspect of their current banking solution to be unsatisfactory. Their biggest complaints fall into three categories:

1. Better financing. Small-business owners want more affordable loans, and quickly. In fact, nearly three quarters said they should be able to get a loan as quickly as they can order something online.
2. Faster payments. Cash is tight for America’s small businesses, and waiting days or weeks to get paid can be painful. More than a third would be willing to try a new provider to get paid on-demand.
3. A single source of truth. Small-business owners want a single platform to manage all of their finances. That way, they can clearly understand how their business is doing and what they need to do next.

To that end, enterprising technology companies have started addressing these pain points. They’ve done so by partnering with a new generation of innovative banks, ones have updated their systems and processes to reflect the preferences of their small business customers.

Some have built dedicated digital banking solutions (e.g., Mercury, Bluevine) that help small-business owners get paid faster and get better financing. Others (e.g., Shopify, DoorDash) are software platforms that have taken the step of embedding business banking directly into their products.

For example, Invoice2go is an online platform that powers hundreds of thousands of small businesses. It helps them take care of things like marketing, payments, customer-relationship management, payroll, taxes—and most recently, banking. The addition of embedded bank accounts provided by a bank partner gives Invoice2go’s small-business customers a single source of truth and helps them get paid faster.

We believe that digital-first offerings like Invoice2go’s have the potential to provide a substantially better experience and drive significant adoption—and thereby transform the face of business banking. As this series continues, we’ll keep talking to small business owners and monitor the latest trends.

Enterprising technology companies have already started helping their small-business customers address these pain points.

¹ For the purposes of this survey, small businesses are defined as those with annual revenues between $25,000 and $20,000,000

² US Small Business Administration, "Small businesses generate 44 percent of US economic activity"

³ Proceedings of the National Academy of Sciences, "The impact of COVID-19 on small business outcomes and expectations"

⁴ For the purposes of this survey, “traditional bank” is defined as a large, established financial institution, for example JP MorganChase, Wells Fargo, or Bank of America.