Funding Your Business: Local Versus National Banks

Funding your middle market company with the right financial partner is a key business decision. Whether you're expanding your operations, building new facilities or investing in projects, access to financing is critical. When you go to a bank for help, you expect several things: the bank will understand your business needs, the bank will have a decision-making executive with whom you'll form a relationship, the bank will have the financial products you need, the bank will be efficient and the bank's funding will be affordable and competitive.

Smaller banks usually offer more customizable funding options while national institutions provide more reach and resources.

Deciding to work with either a local or regional bank or a national bank can be a complex, multifaceted choice. Here are some factors to think about, along with the type of bank that comes out on top for each:

  • Getting to know you. Local and regional banks are renowned for being close to their business customers and communities. There's less turnover among commercial lending managers at smaller institutions versus larger ones, so the people you work with have a better chance of getting to know your company over the long term. This is exactly what you want. While a national bank may view you as a "small fish in a big pond" because they have relationships with thousands of companies, a local or regional bank will likely see you as an important client they want to retain and develop. When you want something from a smaller bank, you'llbe able to seek more personalized service. Advantage: Local and regional banks.
  • Show me the money. Big banks are bigger for one obvious reason: They have more money. While you may outgrow your local or regional bank's capacity to access capital on your behalf, national institutions are able to handle your funding requests in larger and higher volumes. Advantage: National banks.
  • Decision-making process. National banks have a reputation for inflicting seemingly endless red tape upon their commercial customers, which means decisions take longer and are more complex. While a local or regional bank may need two or three levels to review your middle market company's funding request, a national bank will have multilevel oversights that involve authorizations from different areas. A phone call to a smaller bank may get you some clarity about the status of your request, but a phone call to a national bank may end in frustration. Overall, local and regional banks remain more flexible and efficient, despite larger banks' efforts to get competitive in this respect. Advantage: Local and regional banks.
  • Risk of institutional failure. Because local and regional banks are more exposed to the business risks in your local area, especially its real estate market, and are smaller in scale, their risk of institutional failure is higher. In 2010 alone, the worst year of the recent recession, more than 150 closed. National banks tend to have more institutional stability to support your business's continuity. Advantage: National banks.
  • Customized products and services. Once you've developed a strong working relationship, local and regional banks are more likely to adjust their offerings to meet your needs. In this respect, they mirror your midsized company's adaptability and customer focus relative to the multinational giants in your market. Like you, local and regional banks pride themselves on being responsive to evolving customer needs and being flexible in their offerings. Advantage: Local and regional banks.
  • Geographical presence and reach. National banks have branches and ATMs everywhere, and this extended reach can benefit their commercial customers — especially when you expand outside your region or partner with suppliers or customers who are geographically diverse. If your local or regional bank has only a few branches with limited hours of operation, it negatively impacts the service level they can provide. Advantage: National banks.
  • Innovation. National banks have specialists looking at product and service innovations, and as a result, these institutions often have more sophisticated products than smaller competitors. All the national banks enable you to manage finances via mobile applications or digital platforms, for example, but such services remain a challenge for local and regional banks. On the other hand, local and regional banks may be able to customize products to meet your specific needs, and this may represent an opportunity for your company to find better solutions. The ability to be agile is innovative, too. Advantage: Uncertain.

In closing, smaller banks usually offer customizable options while national institutions provide more reach and resources. The type you go with depends on your business priorities and goals.

What kind of financial institution does your company use? What were your main deciding factors in choosing that institution? Tell us by commenting below.

Boston-based Chuck Leddy is an NCMM contributor and a freelance reporter who contributes regularly to The Boston Globe and Harvard Gazette. He also trains Fortune 500 executives in business-communication skills as an instructor for EF Education. Circle him on Google+.


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