Pros and Cons of National, Regional and Community Banks

Choosing a bank that fits the needs of your small business can be confusing. Do you go with the personalized service of a community bank or the convenience of a regional or national bank? Examining the pros and cons of each will allow you to make an informed decision and choose the best option for your small business.

National and Regional Banking

Regional and National banks offer the convenience of multiple locations, usually throughout the country or internationally. This makes it easier to take care of financial matters when traveling. Numerous locations also make it easier for cash businesses to drop off their deposits at locations close by. National banks may also have employees work longer hours answer questions by phone or online than local banks do.

Naturally, national banks have a greater resources and more lending capability. They may also provide more services than local banking institutions. National and regional banks often associate with third parties to offer specific services to their clients.

The international presence of larger banks makes them the better option for businesses that are expanding onto the global market. They often employ international banking specialists and can easily transfer different currencies and funds between countries if they have trans-border services.

Some people feel that national and regional banks lack the personal service that smaller community banks provide. Larger banks are also less flexible in their procedures and less willing to negotiate than smaller banks. However, convenience often factors into the decision to choose a national or regional bank.

Community Banks

Former executives of larger banks and local business owners often open community banks. They are privately owned and do not have to report their earnings to Wall Street investors. This makes it possible for them to focus on serving their local community.

The personalized service that community banks provide is a draw for many customers. A small and dedicated staff gets to know their clientele, and they do not have as many rules limiting the quality of service that they can provide. Community banks have fewer resources, but they can be more flexible in providing loans to small businesses. Because of the personal service that community banks provide, loans are based on more than a credit score. Factors such as the business' impact on the community and references do carry weight with community banks.

The size of community banks makes them personable, but they have limited locations and financial resources. They cannot grant extremely large loans and the number of services that national or regional banks offer greatly outnumber the services offered by a community bank. However, many small, local businesses still choose to keep the personal service of the community banks.

Companies and Banking

The age of a company will help determine where it should bank or look for loans. Small startup organizations will have a difficult time regardless of where they look for loans. All banks hesitate to grant loans to businesses under two years old that are not well financed. However, community banks are more likely to examine a complete portfolio and fund a fledgling business. Larger banks are more likely to place holds on large deposits at the beginning, while community banks offer more lenient on the issue.

Young businesses that have survived for two years will find it much easier to obtain loans. Community banks are particularly open to granting loans at this stage. They may be a sound option, unless the business requires services or an amount of money that community banks cannot afford.

Growth is typically a good thing, and most community banks monitor the cash deposits of a company closely. However, when a business is growing rapidly, which is at a rate of 20 percent annually, banks become uncomfortable. If the business manages to retain a very high net margin, growth is not an issue, but the chances of this happening are slim. Once a company reaches this level of growth, it might be time to consider both bank and commercial financing to keep things in shape, and prevent endless financial meetings with lenders.

Each small business has its own unique needs. Examining the different options and weighing them against the company's needs will allow small business owners to choose the best banking system at every stage of growth and development.

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