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September 13, 2018

Banking Partners: Too Big to Help or Too Small to Ride?

By Josh Fiorini

Banks, like other financial service providers, can have a tendency to seem all the same. A checking account is a checking account, right? They all have ATMs and teller windows, and they all stay open a little later on Thursday and Friday. Yet there’s a lot more to a banking relationship than just deposit and draft services. Choosing the right banking partner (or partners) can prove to be an asset to your business when you need it most, as well as present opportunities to both save and earn more money for your business.

A question I get frequently is whether I would recommend that a small business choose a smaller local bank or go with a national/international brand. There is not a one-size-fits-all answer to that question, so let’s take a look at the pros and cons of each and what to consider to determine what’s right for you.

Small Bank Pros

The biggest pro of a small bank is, for lack of a better term, intimacy. You are dealing directly with people in your community who will get to know you and your business. They also know your local marketplace, demographics and probably some influential people in your community. You or your staff will get to know the tellers and managers at your branch by name, and your in-person business will likely be hassle-free. Additionally, a local bank is an ally to call on if you need help with a problem such as zoning or waste removal, as they want to see you succeed and likely have the connections to facilitate remedies to such issues.

Perhaps most valuable to having a relationship with your local bank is flexibility. Because the bank officers have a relatively small portfolio and know you, assuming your relationship with them is a good one, they can go much farther with credit on faith or your word than a big bank can. This can come in very handy in lean times or when you’re looking for growth capital.

Small Bank Cons

The two biggest gaps between big banks and small are often technology and diversity of services. While this is slowly changing — many local banks have caught up with mobile apps and online banking considerably the past few years — the fact remains that big banks offer most robust electronic banking services than do small ones. With entire divisions devoted to developing custom software, big bank mobile and e-banking platforms are intuitive, comprehensive and easy to use. They are also able to access years of records at a click or navigate dozens of deposit accounts, loan accounts and even brokerage transactions. Additionally, most small banks are just that — banks. Where a large institution can offer many different types of credit, money market accounts, investment management, brokerage and investment banking services, small banks generally have a much more limited suite of products and services to offer.

If you are a retailer, one item to consider here is merchant processing services. All big banks offer this, but only some small banks do.


Banking Pros & Cons

Big Bank Pros

The main benefits of being with a big bank include reach and ease of use. A bank that has an international presence can be a good thing if you or your employees travel; checks are honored more easily and quickly across state lines, and you can generally find branches in most major metro areas. Additionally, you can find all your financial services under one roof. Your deposits, merchant processing, cash management, lending and even insurance products can come from the same vendor, and that can create discounts for you as well as make overall financial management easier. Your ATM and merchant fees will likely be lower, and the bigger the bank the bigger their deposit base, which means it has more lending power.

One thing to consider is that it is possible for your business to outgrow a smaller bank from a credit perspective, a situation in which your next loan inquiry might simply be too big for that bank’s balance sheet. That is very unlikely to happen with a bank that operates on a national or international scale.

Big Bank Cons

The downside of the big bank relationship is the inverse of the primary upside of the small bank relationship.

While at a smaller bank you can develop a personal relationship and have a team that understands and appreciates you and your business, with a large bank you are in fact just a number. You may have a local representative with whom you have a good relationship, but even that person will be tied by very strict rules, policies and guidelines issued from the top that he or she cannot bend or waive. Very simply, if you fit the criteria you get the product, and if you don’t you won’t. There will be no better terms because you have demonstrated your creditworthiness, and there will be no favors when you may need them. Customer service, while potentially efficient, will likely be with a computer over a toll-free number. Big banks try to have a “community face,” but they are simply not community banks. Further, big banks have to worry about politics on a national level, while small banks generally do not. This can lead to adverse consequences for your banking relationship that have nothing to do with you or your business.

Your Decision

What banking institution is right for you? If minimizing fees is your aim and yours is generally a creditworthy and established business that has little need for non-standardized services, then it is likely a big bank would serve you well. If you are a smaller or growing business that needs minimal services and appreciates a bank that can truly act as a partner as you grow, a small bank may be better. There is also no rule that says you can’t use both, but if you do, be upfront about it. Regardless of what you choose, take your credit seriously, steward your assets and evaluate each product against its competition. If you do those things, you will always make the right choice.

About the Author
Josh Fiorini has a wealth of experience in manufacturing, business management and finance both within and without the firearms industry. He was the CEO of PTR Industries, Inc., for seven years and spent the first decade of his career in finance holding positions as an equity analyst and portfolio manager before starting his own hedge fund which led him to the firearms industry. This experience, along with a deep background in manufacturing, banking and private equity, has made him a sought-after contributor on numerous boards, discussion groups, media outlets, corporations and community organizations. Currently, Fiorini invests his time with non-profit initiatives and acts as a contributor and management consultant to various firms in the firearms industry. His activities have been reported in such publications as The Wall Street Journal, The New York Times and USA Today.

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