Community banks can often be a great funding source for a business. Whether or not they will be the right source of financing for your business will largely depend on the growth stage of your business. Let's take a look at the common stages.
Startup Business
Community banks are much more personal in the sense that they will use a lot of personal judgment in awarding a loan. They will also look at your complete credit score and not just the FICO credit score. This is important because it is possible for a person to have good personal credit history but have a low credit score at the same time. While most other banks will turn down your application, community banks might be more lenient in this regard.
The drawback, however, is that a community bank will rarely lend to a business that has been operating for less than 2 years. Another drawback is that they are often subject to mergers and acquisitions where they get gobbled up by large private banks. When that happens, they might revamp the whole system in such a way that your existing loan will be negatively affected.
Growing Business
This is the ideal time for a small business owner to approach a community bank as they usually lend to businesses that have already gone past the introductory stage. As mentioned earlier, if your business is more than 2 years old, there is a good chance to get approval at your local bank.
The disadvantage here is that they will usually have just one or two locations. If your business is growing, you will probably need more than just one branch to conveniently carry out your banking. This will not be possible with a local bank.
Fast growing business
You will probably expect this to be the most attractive classification. The fact however is that they get very fidgety when they see one of their clients experiencing a rapid growth in their business. This happens because rapid growth and profitability levels do not always go hand in hand. The community bank will assess your growth and may refuse to fund future expansions for your business as they might not be comfortable with the really fast pace of growth. You will thus be a bit stranded and might have to seek assistance from other banks and lending institutions that will usually have tougher terms than a community bank.
Should a community bank be on your potential lender list? Well, objectively analyze your business and the answer should become fairly obvious.
Community banks can often be a great funding source for a business. Whether or not they will be the right source of financing for your business will largely depend on the growth stage of your business. Let's take a look at the common stages.
Startup Business
Community banks are much more personal in the sense that they will use a lot of personal judgment in awarding a loan. They will also look at your complete credit score and not just the FICO credit score. This is important because it is possible for a person to have good personal credit history but have a low credit score at the same time. While most other banks will turn down your application, community banks might be more lenient in this regard.
The drawback, however, is that a community bank will rarely lend to a business that has been operating for less than 2 years. Another drawback is that they are often subject to mergers and acquisitions where they get gobbled up by large private banks. When that happens, they might revamp the whole system in such a way that your existing loan will be negatively affected.
Growing Business
This is the ideal time for a small business owner to approach a community bank as they usually lend to businesses that have already gone past the introductory stage. As mentioned earlier, if your business is more than 2 years old, there is a good chance to get approval at your local bank.
The disadvantage here is that they will usually have just one or two locations. If your business is growing, you will probably need more than just one branch to conveniently carry out your banking. This will not be possible with a local bank.
Fast growing business
You will probably expect this to be the most attractive classification. The fact however is that they get very fidgety when they see one of their clients experiencing a rapid growth in their business. This happens because rapid growth and profitability levels do not always go hand in hand. The community bank will assess your growth and may refuse to fund future expansions for your business as they might not be comfortable with the really fast pace of growth. You will thus be a bit stranded and might have to seek assistance from other banks and lending institutions that will usually have tougher terms than a community bank.
Should a community bank be on your potential lender list? Well, objectively analyze your business and the answer should become fairly obvious.
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