Are Small Banks Better for Small Business?

Are small businesses fed up with big banks? According to some sources, smaller-scale entrepreneurs are indeed shifting away from huge international banking firms and towards more modestly-sized and local financial institutions.

It seems like a nice match: small businesses financed by small banks. But it isn’t necessarily happening because of symmetry. Rather, because of frustration with larger banks’ fees and tight credit.

The Huffington Post tells the story of David Meinert, an entrepreneur with good credit and a company with $2 million in revenue, who was turned down by Chase for a relatively small loan of $50,000.

There’s no denying that Meinert’s frustration echoes the popular attitude towards banks today: “It’s frustrating that banks are getting billions of dollars in taxpayers’ money and they’re sitting on that money and not lending it to small businesses,” he said. “If you’re making less than $10 million, they don’t care about you.”

“Businesses with under $2 million in revenue have a much easier time getting loans at smaller regional banks that are frankly much more organized to lend to small businesses,” says Ami Kassar, founder and CEO of Philadelphia-based MultiFunding. “It’s a general statement, but the statistics prove it.”

What statistics? According to MultiFunding’s figures, last year, “the top 25 banks controlled about 61 percent of all deposits, but made only 20.3 percent of all SBA 7(a) loans.

“Smaller banks held about 39 percent of all deposits but made 79.4 percent of all SBA 7(a) loans.”

These statistics also show that a mere .0078 percent of Citibank’s deposits went to SBA loans in 2010. And that bank’s small-business loan total was $3.1 billion as of June 30, 2011 — compared to $7.5 billion in 2008. “So they shaved their small-business loans down by 58 percent in the recession,” Kassar says.

The article cites other entrepreneurs fed up with big banks like Wells Fargo and Bank of America. But, given the Huffington Post‘s political leanings, there’s certainly room for debate here. Writing at Delaware Online, Rhonda Abrams goes even farther.

Small businesses are part of the 99 percent: Others with their own agenda may say that small-business owners are part of the 1 percent. They’re wrong; I’m guessing that you aren’t … Even if your clients are large companies, their customers are likely to be middle class. When the middle class suffers, you suffer. The 99 percent provide social order critical for small businesses.

What do you think? Are small banks better for small business, eliminating the ridiculous fees and frustratingly tight credit in the process? Sound off in the comments and share your own experiences with the Vistage community.
Originally published: Nov 7, 2011

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