Help From a Community Bank Could Catalyze Small Business Success

According to a recent CNBC article by Louis Hernandez, Jr., community-based financial institutions are best equipped to help small enterprises begin to recover from the recession.

Hernandez, author of the upcoming book “Saving the American Dream: Main Street’s Last Stand,” writes that community banks represent Main Street. He believes they should be viewed by small business owners as “trusted financial intermediaries that exist to aid them in achieving their own goals … (and) want to help small businesses grow so they can further stimulate their local economy, which in turn drives our national economic growth.”

Community Banks Offer Better Access to Credit

Hernandez cites a study from Raddon Financial Group’s National Small Business Research that found only 9% of small businesses that primarily used a community bank felt their institution was not making credit available, compared to 27% of those using a top-five bank.

Superior Customer Satisfaction

The research also revealed that small enterprises are more satisfied with community financial institutions than larger banks. Specifically, 45% of entrepreneurs said they were pleased with the service from their local community bank, compared to less than one-third (32%) of their counterparts using a top-five bank.

Hernandez chalks this up to the fact that community banks like My Bank know their customers and communities well. Such institutions are more equipped to offer personalized business banking options and financial tips relevant to small companies’ unique challenges.

Advantages of Community Banks

Independent Community Bankers of America (ICBA) lists a few other reasons why community banks can be more beneficial for small businesses than their larger counterparts. Specifically, they focus on local families, businesses, and farmers rather than prioritizing large corporations. They also have financial services consultants and community bank officers (CBOs) on-site—a state of affairs that’s in direct contrast to larger banks, which typically have CEOs headquartered elsewhere and receive little or no exposure to daily customer dealings.

Unlike emotionally and physically detached big-bank CEOs, CBOs are also likely to be more involved in their communities. Indeed, community banks provide most of their loans to local neighborhoods where depositors work, live, and raise their families, meaning much of their investment goes directly into the local economy. As Hernandez notes, community banks serve a higher percentage of small businesses and strive to pay more attention to them. Small enterprises are a lot more likely to get lost in the shuffle when dealing with big banks.

Community Banks as Small Businesses

Ultimately, ICBA explains that community banks are small businesses in their own right, which means they understand the needs of small enterprise owners and are more able to work to accommodate them.

Federal Reserve and Federal Deposit Insurance Corporation Insights

In remarks to a recent community banking conference, Federal Reserve Chairman Ben Bernanke noted that financial institutions with assets below $10 billion have seen their profits rise over the past several quarters, The Associated Press reports. Community banks also saw their capital reserves increase against future losses, partly because it’s easier for them to raise capital.

At the same conference, Martin J. Gruenberg, acting chairman of the Federal Deposit Insurance Corporation, noted that community banks’ propensity to provide loans in rural communities, inner-city neighborhoods, and small towns helps to fill a lending void.

“Given the labor-intensive, highly customized nature of many small business loans, it is not clear that large institutions would easily fill this critical need if community banks were not there,” Gruenberg said, as quoted by the news source.

Partner Eith First United Bank & Trust for Small Business Success