With which of these three do you have your primary business banking relationship?
36% - Independent community bank
4% - Credit union
In our most recent online poll, over 60% of respondents to our most recent poll chose “National or large regional bank” as the financial organization they have their primary relationship with. A little more than a third chose, “Independent community bank,” and only 5% said “Credit union.”
As you may know, for most of two decades, I’ve advised small business owners that not only should one of their banking relationships be with an independent community bank, it should be their primary bank - the one that has your deposit account and is your go-to bank for a business loan.
Blasingame’s 2nd Law of Small Business states: It’s redundant to say “undercapitalized small business.” This truth is why small businesses need a bank relationship that’s heavy on the relationship part; with a bank that has one of its founding principles to serve small businesses in the community, including making local loan decisions by humans, not computers.
I never said there was anything wrong with the big banks. In fact, I have recommended that small businesses should have a second relationship with a larger bank. One good reason is because if your business grows to a point where you have multi-millions in annual revenue, you could outgrow your beloved community bank and that’s when only a large regional or national bank will do.
But my advice to maintain a relationship with a locally-owned and governed community bank turned to prophecy when, in 2008, the national chain banks and the large regionals got caught up in the financial crisis and they basically abandoned small businesses. They didn’t do this to be mean; they did it to survive.
Big banks are trying really hard to recover the ground they’ve lost in the past three years, so perhaps their plan is working. Also, loan demand by small businesses is still very low, so the computer-generated, credit-scoring method of loan evaluation practiced by the big banks is not yet putting pressure on these relationships.
Nevertheless, I still believe that, regardless of any other banking relationship, a small business should have an active relationship with an independent community bank - if for no other reason than long-term survival.
Recently on The Small Business Advocate Show I talked with my friend and Brain Trust member, Mike Menzies, President of Easton Bank & Trust in Easton, Maryland about the independent community bank landscape and how independent banks are faring in this economy. Click on one of the links below to listen or download.