Pros and Cons of National, Regional and Community Banks

Updated: May 14, 2009

Issue


Today, banks seems as ubiquitous as Starbucks franchises. On nearly every corner you can find a different branch or ATM kiosk. To choose a bank from all this abundance, you can start with an easy question: where do you need one? Most people need a bank near where they live or work. But some businesses may also need a bank that's close to their customers and/or suppliers. Geographically speaking, there are three recognized categories of banks. Each has its pros and cons.

Analysis

Community banks are the most numerous by far, and the smallest. Typically, a community bank has assets of $500 million or less. Its branch locations are limited, often to one town, city or metropolitan area. Community banks are common in rural areas.

Beyond assets and geographic distribution, community banks are different in character from their larger relatives. They are often founded by local business leaders, including defectors from regional and national banks. Most are small by choice; they grow big enough to serve the communities that matter to them and then stop. "Enough is Abundance," they say. They are privately or closely held, not totally ruled by the insatiable greed of Wall Street. Community banks value profit, of course, but they hold other values just as dear.

The "personal touch" is one such value. A community bank's organization structure is quite flat. Front-line staffers have greater authority to help customers than do their counterparts in regional or national banks. The policy manual is much thinner; its pages may be in a ring binder instead of being hidebound. Community bankers serve people, not policies.

This makes all the difference in the world when you need a loan. A community bank will consider not only your credit score but also the value that you stand to bring to the community. A Manhattan-based national bank could care less how many jobs your start-up business will create in Iowa. At a community bank, even if your credit history is not perfect you will get a chance to sit down and explain why you deserve the loan anyway.

Shortcomings of community banks include their limited number of branches, smaller lending capacity, and narrower selection of non-depository financial services such as business insurance, payroll services, etc. On the other hand, most community banks belong to ATM networks that provide nationwide coverage, and offer online banking services. A number of community banks are partnering with insurers and other financial services providers to close the gaps in their in-house service lineups.

But if your business keeps growing you may need a large loan that your community bank simply can't risk under its bylaws. You will have to move to a regional or national bank. The size distinction between "regional" and "national" is a matter of opinion and not terribly important. If a bank does business where you do business that should be good enough. A bank's Web site will tell you exactly where its branches and ATMs are.

Regional and national banks offer the convenience of many locations in many cities. Businesses that deal in cash, such as gas stations and restaurants, need a bank with branches near all of their properties. Some businesses may deposit cash twice a day to reduce the risk of theft. The shorter the trip to and from the bank, the smaller the risk of a holdup.

The lending capacities of regional and national banks are much greater than those of community banks. A wider range of financial services is available either through in-house departments or partnerships with large third parties. Customer service representatives are generally available online and by phone for longer hours than a community bank.

If you serve international markets, regional and national banks may offer trans-border services that can move money faster between currencies and countries. International banking specialists can help you make valuable connections with new customers and suppliers. Import/export businesses are usually better off with a large regional or national bank.

The Bottom Line

Selecting a bank should be done by matching your business needs to a bank's capabilities. The nature of your business often dictates where you need bank branches, what non-depository financial services you need and how much "understanding" you require from lending decision makers.

For more on banking and financial services, check out the Financial Services Resource Center. There, you'll find comprehensive research, community-contributed content and advice from Focus Experts.

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