Tag Archive for 'community banks'

Video - A community bank is not a little big bank

In this week’s video I explain the importance of community banks and small businesses.

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A community bank is not a little big bank

Wall Street’s too-big-to-fail banks were the parents of the 2008 financial crisis. But one-size-fits-all reform reaction to the crisis by Congress and regulators is turning Main Street banks into collateral damage, as if they were too-small-to-matter. Here’s why anything that unnecessarily burdens community banks should concern every small business owner.

At the end of 2012, there were 7,092 banks insured by FDIC, of which 6,201, or 87%, were community banks with less than $1 billion in assets. Banks are classified by asset size, and the average community bank has just over $200 million in assets. By comparison, two big banks – Citigroup and Wells Fargo – are each the size of all 6,201 community banks combined.

Small business owners don’t care much about a bank’s asset size. But they care very much about certain bank characteristics that manifest uniquely in a community bank as its special sauce – relationship banking. To a small business owner a community bank…

… is locally owned and managed.

… takes into account a business owner’s character when making loan decisions.

… decides small business loans by a local committee, not credit scoring by a computer.

This definition is important because, by definition, all small businesses are undercapitalized. How this translates out on Main Street is that sooner or later, and more often than not, small business owners will need to avail themselves of a community bank’s special sauce.

According to the Independent Community Bankers of America (ICBA), even though community banks have only 20% of all bank assets, and hold less than 20% of total deposits (FDIC), they make almost 60% of small business loans. This tracks closely with our own research. In a recent online poll we asked small business owners about their banking relationship and 53% told us their primary bank, including for loans, was a community bank.

A recent FDIC study confirmed that community banks serve all Main Streets: Of the more than 3,000 counties in the U.S., about 20% are represented only by community banks.

Bank loans are the largest source of growth capital for America’s small businesses, which just happen to create over half of the U.S. economy and employ over half of its workers. Consequently, regulating Main Street banks the same as Wall Street’s too-big-to-fail banks puts in jeopardy America’s small businesses and the economy.

Small businesses and community banks are the twin pillars of America’s Main Street economy.

Check out more of Jim’s great content HERE!

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The facts on small business and banks

Listening to pundits and politicians, you’d think banks were intentionally hurting small businesses and the economy. When a Senator or “Talking Head” says, “This economy needs banks to start lending to small businesses again,” you might think they know what they’re talking about. They don’t.

The NFIB Small Business Optimism Index is the gold standard of small business surveys. If you track the monthly results of Dr. Bill Dunkelberg’s work on his Index, as I have on my radio program for more than a decade, you will see that throughout the entire period since the Great Recession began in 2008, more than 90% of small business owners have consistently reported that their “credit needs are being met.”

It’s true that the big banks curtailed lending while getting their own balance sheets under control. But out here on Main Street USA, if your small business qualifies for credit and wants it, you can get it from either an independent community bank or credit union, if not from one of the national banks. The problem is not credit availability; it’s demand. Like everybody else on Planet Earth, small businesses are deleveraging.

We wanted to know a bit more about the banking relationships of small business owners, so recently, on our website and weekly e-newsletter, we asked this question: “What type of bank do you do business with?” Here’s what we learned:

Our respondents who do business with a “large regional or national bank,” were barely more than those who said they trade with a “local community bank,” coming in at 38% and 36%, respectively. The third option of our poll, “a local credit union” – which are increasingly proving their relevance to small businesses – was chosen by 15% of our sample. And finally, a little more than one-in-ten said they needed a bank.

A week later, in a companion poll, we asked our small business audience: “Are you happy with your current banking relationship?” Seven out of ten said yes and 17% said no. And the group who said they “would change banks if they could,” came in at 13%.

The results of our unscientific online polls are backed up by the findings of several highly regarded surveys, like Dunkelberg’s NFIB Index: Main Street small businesses are dealing with many challenges in this not-so-great recovery, but access to credit is not one of them.

Uncertainty is suppressing small business loan demand, not banks.

I talked more about banking relationships recently on The Small Business Advocate Show. Click here to listen or download my conversation on how happy small businesses are with their banks.

For more great SBA content, click HERE!

The small business response to President Obama’s State of the Union Speech

In President Obama’s 2010 State of the Union speech he identified a number of issues that he apparently believed would appeal to Main Street small business owners. Alas, for the most part, his list merely revealed how out of touch he is with the challenges America’s small firms are facing today. Here are two of those points followed by my explanation of why the president needs better advisors when it comes to talking with small business owners.

$30 billion for community banks to loan to small business: On its face, this sound great, but as I have reported for almost two years, community banks don’t have a cash-for-loans problem; they have plenty of cash already and don’t want money - or the associated hassle - from the government. Nor do independent banks need more incentive to make small business loans. The overarching small business credit problem is not supply, but rather, demand. The condition of the economy is resulting in very little loan demand by small businesses. Wise up, Mr. President.

Eliminate capital gains for small business: It wouldn’t take a long conversation with any small business owner to discover that capital gains tax is their absolute least challenge as it virtually NEVER comes into play in the operation of their business, and any jobs creation as a result would be impossible to measure. In the list of the top 20 things that wake a small business owner up at night, capital gains tax wouldn’t appear. Mr. President, this is embarrassing.

Recently, on my radio program, The Small Business Advocate Show, I talked in greater detail about these and other issues in my small business response to President Obama’s state of the union speech. Take a few minutes to listen and let me know your thoughts on Obama’s plan for helping small businesses. Listen Live! Download, Too!




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