Q:Several community banks have recently opened in the area. What are the advantages and disadvantages of working with a community bank versus a regional or national bank?
The problem: choosing the right bank.Here a bank, there a bank, everywhere a bank-bank. A song or a reality? These days it is a reality. With so many banks to choose from, it is important to understand their similarities and differences, as well as their strengths and weaknesses.
The solution: find a bank that meets your needs.For an individual, choosing the right bank could mean the difference between getting a mortgage and staying in an apartment. For a business, choosing the right bank could mean the difference between getting a loan and going out of business. Finding a bank that meets your needs can be more difficult than it sounds. Let’s look at the two main categories of banks.
Community banks.Often started by executives who defect from the largest banks, community banks have been started throughout New Jersey. In traditional corporate form, many of the most successful village banks were acquired by regional and national banks in the late 1990s. This has left a void and therefore an opportunity for new banks to flourish.
One of its key benefits for clients is direct access to senior bankers and senior management. With a community bank, front-line employees have more discretion to make decisions than a larger bank that must follow strict corporate headquarters policies and procedures. For example, in most large banks, the decision to offer an individual a mortgage is based primarily on the applicant’s credit rating.
A community bank has the flexibility to review the application, review the credit score, and meet with the borrower to understand the unique circumstances that may influence the final decision to offer a mortgage.
Community banks can offer personalized services that larger banks have a hard time matching. Whether it’s the smiling face of a teller or a bank officer handing over documents to your business, community banks go a long way toward demonstrating a high level of personalized service. The community banks have done a good job of retaining their staff, allowing them to provide a consistent customer experience.
Community banks’ weaknesses include their limited branch network, creditworthiness, and variety of financial services. Unlike some of the larger banks, many of the community banks have few branches. Fortunately, most offer ATM cards that can be used around the world and Internet access 24 hours a day, seven days a week. A growing business may find that local community banks simply cannot offer the $ 30 million loan needed to expand operations, due to bank lending restrictions. Consumers seeking investment services and insurance services will often be turned away at the community bank. Several community banks have recently started offering these services through partnerships with companies that specialize in these services.
Regional and national banks.Some consumers like the idea that they can log into the same bank, no matter what city (or state) they are in, like a fast food chain. Having the luxury of making a deposit at a branch close to your office or a withdrawal close to your home is a luxury that some consumers simply cannot resist. Many of the larger banks have hundreds of branches in a wide spectrum of locations, from supermarkets to office buildings to stand-alone locations.
Businesses that operate in cash, such as restaurants and gas stations, may require a regional or national bank with branches near each of their locations. Some companies must deposit cash into your bank account twice a day to reduce the risk of theft. Larger companies looking for capital to grow may need the lending solutions offered by regional or national banks. Regional and national banks have enormous creditworthiness at the local, national and global level. Most regional and national banks offer a wide variety of financial services, from investments to insurance and trusts. These services can be offered by bank employees or through external partners.
Conclusions.Selecting the correct bank should be based on your individual needs. Clients looking for a large branch network or large lending capacity may be best suited for a regional or national bank. Clients looking for personalized service, direct access to top management, and more flexible loan criteria may be best suited for a community bank. Sometimes it’s just about supporting a local business in your community.
07/08/07
Skloff Financial Group
Question of the month
By Aaron Skloff, AIF, CFA, MBA