A look at community banks and small business lending

By David Schroeder
Community Bankers Association of Illinois
Posted11/24/2016 1:00 AM

The nation's community banks have earned the strong reputation for being the lenders of choice for small businesses. Small businesses play a critical role in our economy as they are the primary innovators and job creators. Community banks understand this because they are small businesses themselves within the larger financial services industry.

Community banks now have only approximately 20 percent of the nation's banking assets. While the declining trend in their share of industry assets is challenging, community banks are none-the-less responsible for originating approximately 50 percent of loans to small businesses. This ability to maintain dominance in small business lending highlights the value of community bank customer-focused relationship development that just can't be matched by the largest banks and online lenders.


Community bank lenders look for ways to make small business loans and will personally and thoughtfully review all of the information presented by a prospective borrower.

The very definition of a small business loan, and a meaningful loan size, vary from bank to bank. Mega banks with hundreds of billions in assets may consider a desirable small business loan to be a minimum of ten million dollars, while for a community bank it may begin at well under one-hundred thousand dollars. You want your small business loan to be considered important and at a community bank it will be.

Community banks have greater flexibility in loan underwriting and approval than other lenders. Others automate the lending process to the greatest extent possible and have rigid approval requirements. Unfortunately that business model works against all but the most simple and cookie-cutter type of loans. Small business loans typically require some explanation of the proposed opportunity and community bank lenders are listening.

Also, who knows where those processing and approving your loan are located at mega banks and online lenders. Community bank lenders live and work in your community.

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The ability to meet and discuss your financial condition and results of operation on an ongoing basis is as important as access to underwriters and decision-makers at loan origination.

Other lenders who view loans as a series of separate transactions won't make the investment of time and energy in managing a small business relationship as community bankers will.

Given the importance of small businesses, and small business lending, to the financial system and the economy, barriers must be removed which prevent community banks from maintaining their current level of small business lending and to encourage them to do more. Community banks share many of the same frustrations as their small business borrowers, namely an increasing regulatory burden. Regulatory burden is taking more valuable time and energy away from community bankers serving all of their customers including small business borrowers.

Regulatory burden has increased markedly in the last decade since the housing meltdown and financial crisis. While this crisis was caused by the largest banks and financial firms, community banks and their small business customers have suffered since the resulting recession with stagnant growth and greater regulatory burden. Community banks are handcuffed by the additional regulatory burden imposed on them by regulators and agencies to prevent a recurrence of a problem which they didn't cause in the first place. Despite these regulatory challenges community banks maintain their strong commitment to small business lending.


A small business person can help themselves by supporting a lending system that best supports their business model.

When your small business needs financing to support or expand your operations your local community bank is there for you.

• David Schroeder is vice president federal governmental relations of the Community Bankers Association of Illinois.

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