Benefits of Getting a Business Loan from a Small Bank

04 Jul, 2016 / Comments: Comments Off on Benefits of Getting a Business Loan from a Small Bank / By

When it comes to banking, the big are getting bigger while the small, community banks stick to their roots. Although these small community banks have just come out of the woods after the financial crisis, there are many hidden benefits of taking out a small business loan from these smaller banks. You’ll find small banks in every town and city in the United States making them an extremely convenient option for your small business lending needs. In fact, the Independent Community of Bankers of America contains over 6,000 community banks. Let’s take a look at some of the biggest benefits of taking out a business loan from a small bank.


Receive the Same Service for Less

The majority of locally operated credit unions and banks offer the same kinds of loan services as the major banks for much less money. Many big banks make much of their money from charging exorbitant fees, whereas the average fees of credit unions and small banks tends to be much lower. On top of this, studies have found that small banks tend to have lower interest rates and better terms than those of big banks.


Receive a Personalized Service

If you prefer to not just be another number, but a valued customer, then a small community bank is the way to go. Small banks tend to get to know their customers and even their whole families, as they offer a relationship-based service. Additionally, small banks have small branches, which means they are more intimate. When you frequent your local community bank, don’t be surprised if you’re offered a cup of coffee or snack before getting down to business. Most small banks offer this kind of personalized service to their customers in order to gain higher personal satisfaction scores and compete with the larger banks.


Allow Your Business Loan Decision to be Made Locally

Your business loan approval at community banks and credit unions, as well as other key decisions pertaining to your loan, are made by people who live within your own community and who you have a face-to-face relationship with. Due to this, they will better understand and serve your local needs. In fact, because local financial institutions have personal knowledge on your situation, business, finances, etc. they will often approve you for a business loan when big banks would deny you. Moreover, if you choose to take out a loan from a credit union, then the control will be with the customers, as these financial institutions are member-owned.


Community Banks are Small Business Oriented

Taking out a loan with a small bank is most popular with farmers and small businesses. This is because most community banks are small businesses themselves, and so they better understand the needs of small business owners. Additionally, it is often the case that community banks will give out small business loans at lower interest rates than their big bank counterpart. Community banks usually operate under legal restrictions so that your finances are not put at risk. They understand the importance of small businesses to the community and so will work to extend loans where they are needed.


Small Banks Are More Flexible

In general, bigger banks stick to stricter lending guidelines, which can make it extremely hard for those that do not have a perfect credit score or have a lower income to obtain a loan. On the other hand, local banks are permitted to establish their own lending guidelines, which typically benefits their customers. Additionally, you may find that a community bank will make an exception for you based on your needs and circumstances and are usually much more flexible and have less restrictions than larger banks. Small banks often will not only consider your credit history, but your family history, character, and banking history as well when making lending decisions.

William Mahnic
William Mahnic is a Finance Professor at Case Western University and has spent more than 20 years in the finance industry before becoming a professor. Mahnic has appeared as a commentator on both TV and radio talk shows including NPR, Crain's Cleveland Business, WKYC 3 and The Washington Post. He has been interviewed in BusinessWeek, Wall Street Journal and The Los Angeles Times.

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