When Small Businesses Should Turn to Small Banks

As a small business owner, you might not know where to turn when you need a bank loan. Your first impulse may be to consider the big bank that offered you a personal credit card or home mortgage. Large banks spend a lot of money to make sure that people remember their brands and logos when they need to borrow money. Still, if you’re looking for a friend in the banking industry, you could find a warmer welcome at a small, local bank that serves the same community that your business serves.

Why Shop Locally for Your Small Business Loan?

Before you turn to a large financial institution with a nationally known brand, take a moment to consider the advantages of dealing with a smaller bank that keeps their headquarters and their money close to home:

Small Banks Prioritize Small Business Loans

A study done by two economists from the University of Houston compared small business lending at both large and small banks. This is what they found:

• For larger banks, small business loans accounted for 7.85 percent of their total loans.
• For small banks, with less than one billion dollars in assets, small business loans accounted for over one-quarter of their total lending.

Small business loans accounted for a much larger percentage of the smaller banks’ total loan business. Thus, these community banks were likely to prioritize these kinds of loans because they made up a much bigger share of their business. If you own a small business, you may want to start looking for financing from an organization that truly values your patronage.

Smaller Banks Can Consider Soft Factors to Approve Loans

Large banks tend to focus on hard data. Their loan officers are even likely to enter your credit scores and other numbers into their software and let the algorithm make a decision. Instead of getting to know their customers, they rely upon computers for loan declines and approvals.

The loan officers at local banks may have more discretion to consider soft factors. For example, they know the community and may even be familiar with you and your business. You could have created a thriving business; however, if you haven’t borrowed much in the past, it’s possible that your business credit scores don’t provide a very accurate assessment of your creditworthiness. A local bank may give you a better chance to present the whole story.

Keep Your Business Local

Just as your business serves and supports your community, so does a community bank. They employ local people, develop relationships with you and your neighbors, and make it possible for hometown people to buy homes, save for retirement, and grow their businesses.

When your community thrives, your business has a better chance to succeed and grow. That is one of the most important reasons to do business with a local bank. You can cooperate with them to help your town or city prosper.

Are There Disadvantages to Business Loans From Community Banks?

You may wonder if you will suffer any disadvantages when you get a loan from a smaller bank. These days, most local banks have the technology to offer you the same convenient services as large banks do. Certainly, this should include such features as paying bills online and account overdraft protection.

Naturally, you will want to check out any local bank that you plan to ask for a loan to make sure that the organization can offer you what you need. However, you should not assume that local banks lack the ability to serve you with the same tools that big banks offer.

Why Look for Business Financing From Inside Your Community?

Certainly, large, national banks may lend more money overall. However, it’s likely that community banks loan focus more upon lending to small businesses in your own city or town. You’re more likely to be greeted by a very service-oriented and friendly face when you visit a local bank than when you visit one branch of a large one. Like you, the loan officer in a small, neighborhood bank will be interested at supporting community businesses. If he or she can’t give you what you want at the moment, the loan officer at a small bank is also likely to offer you advice about how to obtain it in the future.

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