How Financial Institutions are Focusing on Startups

Financial services providers have always been considered indifferent to the plight of new business ventures. The structure of the lending services available at most traditional financial institutions is designed to this effect. It enables them to operate without worrying whether the business sector is going to thrive. As long as loans are repaid on time, and obligations to the institutions are met in a timely manner all seems okay. However, this tide of indifference to the needs of new business is changing quite rapidly. Financial institutions have focused on smaller businesses in several ways, the most prominent of which is managed services.

Managed services are a situation where the service provider in the finance industry undertakes to provide more than credit facilities. They take over the control of the finances of the business especially as regards the use of credit facilities they have provided. This is usually done in the form of expert advice and information on the use of the available credit facilities. These services are designed to ensure that new entrepreneurs are equipped with the tools that will enable them to succeed within a more competitive market environment. For example, the financial institution can advise them to seek cloud solutions providers. This enables them to outsource their information technology infrastructure at a cost which is more affordable than acquisition. By involving themselves in the expenditure mechanism as a consultant, they are able to provide financial oversight to the startup. A majority of startups fail because they fail to exercise wisdom in finances. Oversight by experienced professional forces the startup company to focus on proper use of resources. This makes the startup likelier to use their resources for future investment.

Why then have financial services providers had this shift in attitude? One, the largest growing sector the economy is startup businesses. There is increased investment in the entrepreneurial sector. Harsh market conditions have been driving increased innovation and investment in startup businesses. This is because a harsh economy means that formal employment is getting harder to find. Where someone manages to find it, the working conditions may be unfavorable or inadequate.

Two, financial service institutions are competing between themselves to build a better market niche. The increase in the number of such institutions means that value added services have become the key to success. This might be the first time that more competition between financial institutions has benefitted small business in such a monumental way.