Small Business Banking: Is a Big Bank or a Small Bank Better?

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Americans have a love-hate relationship with their banks—whether those banks are big or small. On one hand, banking fees keep rising. On the other, banks are offering more services and online tools to make banking simpler and less time-consuming.

For small business owners, big banks have historically presented a challenge in terms of obtaining financing. Small banks, although they might be more welcoming as lenders, often lack sophisticated banking tools and have a higher risk of going under.

Realizing that you need to weigh your decision of whether to go with a large or small bank for your business is already a step in the right direction. There was a time, not long ago, when bigger banks turned their noses up at small businesses. Today, however, with statistics showing that 57% of small businesses anticipated revenue increases in 2015, larger banks are starting to roll out the red carpet, even helping small businesses organize their financials to ease the loan application process.

The new efforts are working. The J.D. Power 2014 U.S. Small Business Banking Satisfaction Study found that overall satisfaction among small business banking customers rebounded from the previous year, with big and midsize banks showing strong improvement. In the same period, satisfaction for regional banks remained flat. The study measured small business customer satisfaction with their overall banking experiences by examining eight factors: product offerings, account manager, facility, account information, problem resolution, credit services, fees and channel activities.

As you consider the pros and cons of a big or small business bank, what should you keep in mind? Positives for big and midsize banks generally include the ability to offer larger and more convenient networks of branches and ATMs, along with easy self-service options, in addition to an increased focus on providing personal service. Those surveyed by J.D. Power actually reported higher incidences of problems occurring with smaller banks than with larger ones.

However, don’t rule out smaller banks, especially if there are several in your area with stellar reputations for being small business-friendly. Start by researching the best banks for small businesses, and see what customers say in the reviews. Some online resources you can tap into include The Best Banks from Reviews.com, WalletHub’s Best Bank Accounts and the SBA’s List of Top 100 Lenders.

Should You Go With a Big Bank or Small Bank?

Here are some factors to consider when making your choice.

Big Banks

Convenience is probably the biggest plus for large and midsize banks. Plus, if you are doing global transactions or traveling overseas, big banks usually have branches in foreign countries or have banking relationships with foreign banks. This enables you to avoid some fees, and transactions tend to be seamless. In addition to a larger presence, bigger banks usually also offer other financial services, like in-house or affiliated brokerage services.

Big banks have cutting-edge tech tools such as remote check deposit, online banking, 24/7 mobile banking and advanced ATM features like bundling deposits so you don’t have to put one check in the machine at a time, saving you a lot of effort. Big banks offer thousands of ATMs and branches, plus ATMs in convenient places like gas stations and grocery stores.

That being said, you pay for what you get: Big banks typically have higher fees than smaller banks and rarely offer free checking. Furthermore, you might finding yourself asking, "Where’s my banker?" as greater bureaucracy and higher employee turnover rates may leave you with many account reps over the lifetime of your business. If you prefer a personal relationship with your banker, big banks may not be right for you.

Small Banks

At small banks, it’s all about personal service. Small banking branches are more intimate and relationship-based. Your business is not just an account number, and you’re made to feel part of a family. Speaking of a smaller scale, fees (e.g. overdraft fees) are generally lower at smaller banks, which also tend to have lower balance requirements.

Smaller banks are known for offering more lending flexibility, and may even offer more commercial loans than big banks. Local banks like to support local businesses.

Even so, the focus at small banks on local businesses can be a plus or minus depending on your business, your industry and your location. Do your homework on your local bank's solvency too, because many smaller banks are still struggling to stay afloat in the face of stricter banking regulations and increasingly stiff competition from big banks.

Choose What's Appropriate For Your Business

Even with those factors in mind, here are two more. First, you must consider why you're applying for a loan in the first place. There might be instances where a loan might be less appropriate than, perhaps, seeking equity funding or a line of credit. You might even find out that all you need is to correct a cash flow problem.

If the answer to the first question means getting a loan, then you'll have to ask yourself, "Which type of bank is most appropriate for my business?" You might be fortunate enough to live in an area with first-class small banks, but said banks may not be able to provide the capital you need. Conversely, if your business could benefit from a tighter lending relationship, then foregoing a larger bank might be in your interest. The correct choice is the one that allows your business to thrive.