Consolidation has cut the number of chartered U.S. banks roughly in half over the past 20 years, but a reduction in the number of banks has not translated into a reduction in the availability of loans for growing businesses. The application process might be daunting, but the money is there. That's partially because the number of branches has not fallen off even though the names on the doors have changed. It has more to do with the industry's economics, which have forced surviving banks to compete harder for the right to lend to small- and midsize-business customers.
Jonathan Scott, a finance professor at Philadelphia's Temple University who studies small-business financing, says the trend is friendly to entrepreneurs and business owners. In recent decades, Fortune 500 customers have increasingly moved their business away from banks and have opted to finance through their own retained earnings or with the low-risk investment option of commercial paper. At the other end of the spectrum, home mortgages have migrated to the secondary market. Credit cards have also lost some of their fizz recently, as consumers have taken advantage of home equity loans and lines of credit to pay down plastic. What is left? Almost by default, Scott says, small and midsize businesses have become a focal point for the nation's biggest banks.
That's good, but it doesn't mean comparison shopping among banks is simple. It's relatively easy to peruse a bank's website to see what it offers in terms of the types of accounts available, the extensiveness of the branch network or the availability of customer support, for example. But comparing and contrasting the products, services and fees that matter most to you is hardly simple. For one thing, the big, national banks often tweak their products and rates by region, so the most relevant information might not be easy to tease out. For another thing, the banks don't all emphasize the same aspects of their businesses in their marketing efforts. In some cases, they take great pains to hide the details that matter most, such as fees for exceeding a certain number of monthly transactions. And the half-dozen or more types of checking accounts each bank offers make easy apples-to-apples comparisons nearly impossible. The bottom line: It could take some serious searching to figure out which big bank--or whether a big bank--is right for your company's situation.
Zen Makonnen, founder and CEO of TechFolio LLC, an IT consulting firm in Tysons Corner, Virginia, found that banks' ads and fliers didn't help her distinguish much between her choices. So she created a spreadsheet with categories for account types, fees (upfront and hidden), minimum balance requirements, payroll and merchant service options, retirement plan help, loan flexibility, online banking options and access to decision-makers. Then, she interviewed the banks in her area to see where they stacked up. She found that their products, services, rates and fees didn't vary much--after all, competitors watch each other closely. Ultimately, she went with Bank of America because of a budding relationship with a vice president who helped her line up financing, consider whether to bring investors onboard and deal with other key issues. "I lucked out by finding that person," Makonnen says.
Scott says that personal touch is what entrepreneurs and business owners often seek out. So, like Makonnen, check the products, services, interest rates and branch networks in your area. But be prepared to find minimal differences. The real search begins after this initial investigation. "Make an appointment; go see the lending officers," Scott suggests. "And rely on your social network for advice. Other business owners [will] know who's good and who's not."
Scott Bernard Nelson is Entrepreneur's "Personal Finance" columnist and is a newspaper editor and freelance writer in Portland, Oregon.