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Is a Small Bank Better for a Small Business?

By Minara El-Rahman on November 12, 2009 | Last updated on March 21, 2019

News has been pretty dismal on the lending front of small business. With the news of bankruptcy filings of CIT Group and Advanta, it seems like there are little if any options for small business financing.

But the NYT is reporting that smaller local banks are moving in to fill that void. With charming slogans such as "Policies to serve your street, not Wall Street," these banks are aiming to keep your business on Main Street alive.

Perhaps turning to the local bank on your street for your small business may not be such a bad idea. A small bank may be more likely to provide stability in today's more somber economy. The Federal Deposit Insurance Corporation (FDIC) thinks that small banks are the best capitalized in the industry right now. That means they have the adequate cash on hand to absorb loan defaults.

In a time where larger institutions are cutting back on outstanding loan balances and hesitant to give loans to small businesses across the nation, smaller local banks have actually grown. In fact, according to an analysis done by the Independent Community Bankers of America, the small bank sector was the only portion of the finance industry to illustrate a growth in net loans and leases in the second quarter.

This is good news considering that most small business owners have reported that they have had a harder time trying to land a loan for their small business. The National Federation of Independent Business  (NFIB) said that a net 14% of small business owners have had a harder time getting a loan.

NFIB said, "With very weak plans to make capital expenditures, add to inventory and expand operations, it would appear that many of those trying to borrow are having cash flow difficulties due to very weak sales."

If you are having a hard time trying to finance your business, perhaps you need to rethink the places that you have been trying to borrow from. Instead of thinking big, think small.  

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