Anne-Marie Saint-John, Alva, Long Island City, NY >
If you’re looking to finance a small business, then you know there are plenty of options where finding a bank is concerned. For many people, the choice of lenders comes down to large banks, community banks, and credit unions. While the right option depends entirely on your individual circumstances and your business, we’ve put together a quick comparison to help you weigh the pros and cons.
Large banks are typically more expansive than community banks and have a far greater reach. In this context, we are discussing national and regional banks. They offer more services than a community bank and usually exist across a large geographical region, cover a number of states, or have branches throughout the U.S. Typically a large bank has assets in excess of $1 billion.
One of the most appealing things about dealing with a large bank is the convenience of being able to access a branch or their services from almost any location in any country, at any time.
Another significant benefit is the range of products on offer. Not only can you open a business banking account and get a small business loan, but you can also get, savings accounts, automobile insurance, life insurance, and many other products.
Innovation and technology are also huge advantages to working with a big bank. Remote checking deposits, online banking, 24/7 access to banking, mobile banking, and other features such as talking ATMs were all introduced and pioneered by large banks. They will typically have international credibility and regularly transact on a global scale. Many of the larger banks have international offices and a global presence, which can be helpful for international transactions.
Larger banks tend to charge a higher rate of fees and charges compared with smaller banks. According to a 2012 survey by the nonprofit U.S. PIRG Education Fund, free checking is currently available only at around 25% of the larger banks.
Because of the structure and size of a big bank, there is more red tape you have to deal with. This translates into less flexibility. Because there are more reporting levels, decisions can take longer, depending on the complexity or the nature of the decision.
With bigger banks, there is general lack of personal attention given to customers whose accounts fall below a certain threshold. Larger banks dedicate an account management team for larger businesses, but it is unlikely that a small businesses will get a named contact at a larger bank.
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Typically, a community bank is owned locally and focuses on addressing the requirements of their local community by offering loans to small businesses. These banks operate with fewer assets, and their greatest appeal is that they offer very personal service to their customers.
While there is no specific definition, the Federal Deposit Insurance Corporation (FDIC) generally reviews the assets of a business to determine whether or not it is classified as a community bank. The guideline is usually that community banks have under $1 billion in assets; in some cases, this can be up to $10 billion.
Having an intimate knowledge of the local community, along with providing personal service, allows community banks to foster great relationships with their customers.
One of the most comforting aspects of dealing with community banks is the personalized service they offer. Because they were founded to serve their local communities, they put great focus and value on relationships, really getting to know their customers and their businesses. It is no surprise to learn that many small business owners prefer a community bank’s personal approach.
With a community bank, you get a level of flexibility that you would rarely experience with a regional or national bank. You will probably speak directly with the decision-maker, as opposed to them hiding behind a cloak of mystery. The old saying “Where there’s a will, there’s a way” applies here. Community banks can “move the box” a little bit further when the circumstances and situation dictate, and they do not have the same rigidity as larger banks.
Community banks tend to retain their staff a lot longer than bigger banks. For this reason, you get a certain continuity of service, knowing that you are investing time in a relationship that is rarely short-lived.
Because a community bank has far fewer overhead costs to manage, they can almost always offer lower fees than large banking institutions. This, along with their competitiveness for winning business, means the overall cost of a loan is typically lower at a community bank.
At a community bank, you might not get the same level of technology or range of product offerings. This doesn’t mean you won’t get banking technology at all; it could just take a lot longer for any new technology you see in the larger banks to filter through.
A credit union is a nonprofit institution that is essentially controlled by those who put money into it. The majority of banks are controlled by shareholders, and their goal is to make the most money possible. Credit unions work a little differently. Any profits made are returned to the members in the form of products, services, and rates. This can translate to a better rate of interest for savings or lower rates for borrowing.
Because of the way they operate, credit unions typically run a far smaller operation, so they service a more limited set of products than a regional or national bank. You will, however, enjoy some similar services that you would with a bank, such as being able to deposit and borrow money and open a new credit card.
Any loans that are made within a credit union are funded from its deposits, and only members of the credit union deposit or borrow funds. If you choose to bank with a credit union, you are helping other members of that same institution.
Many people believe that credit unions have restricted access to ATMs and branches. However, many credit unions actually belong to a larger network. In some cases, depending on your location, you could have easier access to a credit union than a bank.
Every member of the credit union is essentially a stakeholder of the business, compared with a bank where you are simply a customer. A bank aims to make money for itself, while a credit union makes money to benefit you directly, as one of its members. Benefits delivered back to you are worth more in terms of lower rates and lower fees.
Most credit unions are free of fees because, unlike banks, they will not charge you to make a transaction. There are stipulations that apply when you use third-party ATMs. However, on the whole, you will pay less for business transactions with a credit union.
The service at a credit union is all geared around members, and you feel part of the community. Members like the combination of more personal service, compared with the service at a national bank, along with knowing that they are contributing to the local community.
With a credit union, a range of products may be less available. With banks, you can access most of banking and investment products under one roof. There are far fewer products available with a credit union, so you may need to double-up, dealing with a credit union and another financial institution to get all the products you need.
Not every credit union is insured, unlike banks, which are fully covered by the FDIC. Some, but not all, federal credit unions are insured by the U.S. government through the NCUA. Please do request this information if you are considering joining a credit union.
Unlike larger banks, credit unions are not at the cutting edge when it comes to technology. Because the bigger banks have better resources and bigger assets, they also have the funds to invest in tech. If you absolutely need an app to manage your banking, you might not get that from a local credit union.
Each of the above options has its pros and cons. Which banking institution will best support your business depends on which of these criteria matters most to you and your business.