A New Dawn – The Heyday of the Small Bank

When the head of Berkshire Hathaway, Warren Buffett, has stated that “the U.S. Economy is ‘flat on the floor’ after a cardiac arrest, it makes even the most optimistic types such as myself wonder about our perhaps inappropriately upbeat position. The world economy is now at stake.

Despite all of this, I see several rays of sunshine. I still see new stores opening. I still see the clients in our business credit program obtaining new trade lines and lines of credit. Most importantly, I still see many smaller, regional banks offering generous offers of credit.

For many years I have instructed our clients to cultivate relationships with small local banks. When I first begin working with a business owner I am often asked if I have a preference as to what bank they open their business checking account with. I tell them that I have excellent referrals if they are looking for them, but I then ask: Do you currently have a good relationship with a bank? If, indeed, they do, I urge them to maintain that. In fact, as a business owner building business credit, a strong relationship with a bank is one of the most valuable tools that they have.

It is true that right now many large banks are facing heavy financial woes; even large banks that are strong and sound are still tightening up the requirements on the money that is lent, that includes the credit cards that are offered and approved. It is difficult than ever to make a splash with one of these large banks.

Again, I must fall back on the argument that small banks are better for small to midsized businesses building credit. Here is an example to consider:

John Smith owns ABC, LLC which operates a restaurant on Main St. in a small town that is on the way to a large and popular ski resort. John successfully builds the credit of ABC, LLC with the assistance of a business credit firm such as ours. He is able to improve his menu and the interior of the restaurant using the independent lines of credit that have been established for the business. At the beginning of all of this, John opened a business checking account with Small Town Bank. Small Town Bank has ten branches all in the same state. John has a good relationship with the Officers at his local branch. He continually puts money into the bank. Lately, due to the improved credit of his business and increased profits he is carrying a mid-five figure balance.

One day the owner of the building where John’s restaurant is located comes to him and says “John, I have had this building for nearly forty years. I am thinking of selling it and moving up to the mountains. You have been a great tenant. You always pay your rent on time and take great care of the space. I would like to give you first crack at it”.

To make a long story short, John goes to Small Town Bank’s local branch and is able to secure the financing for the building. Of course, some of this has to do with the fact that the building is a tangible asset and is priced near its current market value, but the more important fact here is that Small Town Bank knows John and his business. They are doing what they always have done, they are lending to their depositing pool.

Had the business owner in this story went over to the Big National Bank across town he very well may still be paying rent to a new owner. The reason: The growth of his business and the bank balances probably would not have made a blip on the radar. In addition, he would have had to go through a mountain of time wasting paperwork. In the meantime, another buyer could come in and buy out the investment from right underneath his feet. This would place the tenant in a precarious position. Not only did he lose out on a great business investment, the business, itself, could be in jeopardy if the new owner decides not renew the lease.

I urge all small to mid-sized business owners to consider the benefits of forming an ongoing relationship with a local or regional bank in their area. These banks take notice of you and your business. You do not need to carry six or seven figure balances in order to have your needs catered to. When it comes time for expansion, these lenders are your best friends. Small banks remain a constant a ray of sunshine for us all.