Small Business Banking: Should You Go Local or National?

September 14, 2017 • 5 min read

Where you decide to keep your money is one of the most important decisions you can make as a small business owner. Where should you bank? The answer the small business banking question depends on what you’re looking for.

Recently, we have seen robust discussions on Townsquared about the difficult decision of where to bank as a small business owner. Many of our members have made the decision to move from big banks to local banks that mirror their communities.

There are several compelling reasons for electing to keep your money at a big, national chain. Big banks have branches and ATMs throughout major cities, and can be accessed across the country. Big banks are also better for businesses that need a wide range of services, like merchant services, payroll, business lines of credit and business credit cards. Additionally, if you plan on being a high growth, multi-million dollar business, big banks can guarantee personalized services for high net worth individuals and businesses.

The accessibility of big banks contrasts with the decades-long consolidation of the banking industry as a result of both increased competition and regulatory burden. The Harvard Business School 2016 State of Small Business Lending report found that there were just 5,210 community banks in 2016 – down from 14,507 banks in 1984.

However, a key reason for joining a community bank is the highly personal nature of their services –  they are described as the “caretaker of your business account” and are often associated with a specific banker. For example, Dale Marie Golden, a Vice President at Bridge Bank (formerly Torrey Pines Bank), is highly recommended by our members and has a reputation for serving small businesses with personalized attention that is “unheard of in the big banks.”

This personal service is reflected in data on satisfaction levels. According to the Federal Reserve 2016 Small Business Credit Survey, community banks have higher satisfaction scores and lower dissatisfaction scores compared to big banks. Consider their different net promoter scores, which represent the likelihood of a customer recommending a company and is calculated by subtracting the percentage of dissatisfied customers from satisfied customers – small banks and credit unions score an impressive 75 out of 100 whereas big banks score just 46.

Furthermore, community banks have more lending flexibility compared to big banks that put every application through the same computer model and credit box. According to the Biz2Credit Small Business Lending Index, big banks have an approval rate of ~24% whereas small banks and credit unions have approval rates of ~48% and ~40%, respectively. Smaller banks are able to make more small business loans because they can draw on qualitative information about their client’s businesses to better assess risk.

When trying to decide between big, national banks and community banks, incidents like the Wells Fargo scandal of 2016 come to mind, where bankers were incentivized to up-sell accounts and sell their clients products they didn’t need. So, while community banks may be harder to locate, it might be worth it to go the distance to secure their services.

When our members ask for banking recommendations, the response is always overwhelmingly in favor of community banks. Business owners cite the personalized service and the sense that they have a genuine stake in the success of their business by providing quality and consistent care of their finances.

Tom Schmidt of Seattle Hills Bookkeeping said, “I’ve banked with Umpqua and their services were adequate, but in general when banks grow, they become more like the large banks that have eliminated the kind of personal banking you can experience with a community bank.”

Candace Combs of In-Symmetry Spa in San Francisco was considering moving her two business accounts to a local San Francisco bank because, “Chase does not work well with small businesses.”

The most important thing that you can do when deciding where to keep your money as a small business owner is to evaluate where you are as a business. Even though some local banks have limited services, if you’re a locally-focused business, it makes sense that you would choose to bank at a branch that focuses their resources on bolstering the local economy.

Victor Wong is a long time small business champion whose experience spans work at NerdWallet, Townsquared, and in political and small business advocacy efforts with the Partnership for NYC and New York City Economic Development Corporation. 

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