Not too long ago I spoke with a small business owner who experienced something I think happens more often than we normally talk about. He was looking for a small business loan, but got turned down by the local bank. Nothing too out of the ordinary there, only about 10 percent of the small businesses that turn to the local bank find success there.
It was the reason he got turned down that made his story a little more unique:
- He had a great credit score
- He had a healthy business that had been around for several years
- He had consistent cash flow—he could make the loan payments
- He even had a strong relationship with the bank and the banker over several years
- He was basically a great borrower by just about every measure most banks look at
Nevertheless, it turned out he had almost too strong a relationship with his bank. He was a very big customer of a very small bank and was therefore turned down.
This particular bank, along with many others just like them, are limited in the amount of capital they can lend based upon their deposits—and the amount of business exposure they have with any one account holder. The loan he was seeking would have put him over the limit. Despite the fact that he was a great credit risk and a wonderful bank customer, his banker had to turn him away because he was basically too good a customer.
So yes, size matters.
That doesn’t mean a big bank with a national footprint is right for you. I’m a big fan of community banks. In the midst of the post-credit crisis, many Main Street businesses have turned to smaller banks because they are traditionally more likely to offer financing to local businesses (at last those who still cater to Main Street).
Despite the fact that community banks are struggling right now as they are either consumed by bigger banks or just disappear altogether, there are still many community bankers invested in their local neighborhoods and really want your business. You just might need to look a little harder to find them.
In the case above, the community bank was simply too small to accommodate the financing needs of one of their big customers, compelling him to find another banking relationship. Finding the right sized bank to meet your needs to day and the right sized bank to meet your needs in the future might be challenging, but regularly evaluating where you are and whether or not your current banking relationship will meet your needs is something that can’t be ignored.
Does your current banking relationship meet your needs? Have you become too big for your bank?