From crowdsourcing to credit cards, there are myriad options to sift through when trying to finance your business. But as the saying goes, ï¿½if it ainï¿½t broke donï¿½t fix itï¿½ ï¿½ and that holds true with business lending. Getting a loan from your local financial institution is still a top choice for small business owners for a variety of reasons.
A history of being small-business friendly
For many years, community-based financial institutions have had the reputation of tackling the bulk of the nationï¿½s small business lending.
ï¿½According to Harvardï¿½s Kennedy School, community banks account for more than half of small business loan volume and nearly half of commercial real estate lending,ï¿½ states Evan Sparks, editor-in-chief of the American Bankers Association (ABA) Banking Journal. ï¿½Itï¿½s not an exaggeration to say that the health of hometown economies depends on having healthy community banks engaged in robust, properly underwritten small business loans.ï¿½
Simplified chain of command
Giant national banks have complex chains of command that stretch across the whole country, which can make it more difficult to figure out exactly who is making the final decision about your loan. When you work with a community-based financial institution, you have a greater ability to meet and speak with the chief decision makers who will determine the fate of your loan.
Entrepreneurs who are just starting out often seek mentorship from business owners who have experience in their area. In other words, working with a local financial institution is like working with a local business with in-depth knowledge of the local economy and the history of area businesses. These financial institutions are primed with knowledge to assess how well your business plan will function in the local business ecosystem, giving you valuable insight to tweak your business plan and boost your chances of success.
Because local financial institutions have strict policies for determining who gets loans, they are more inclined to offer small business owners a deal that can save them money.
ï¿½Traditional brick-and-mortar banks are still your best option for borrowing the largest amount of money at the lowest interest rates,ï¿½ states Saundra Latham in an article on The Simple Dollar that assesses the best places for small business loans in 2017. ï¿½They may also offer longer repayment terms if you need them.ï¿½
Prior relationships pay
Startups that donï¿½t have established business credit histories often must rely on their personal finances and history to prove their creditworthiness. While any financial institution can take a look at your credit score, you are starting out ahead of the game if you already have a relationship with your local financial institution, such as from when you obtained your mortgage. If it has experience working with you on a personal level, that can go a long way toward proving your character ï¿½ one of the factors that the majority of lenders take into account.
Keeping your local business funded by a local business just makes sense, as it makes it simple for you to stay in contact with the key decision-makers, ask any questions you have during the process and find the best rate.