Why Community Banks Remain One of the Top Lending Options for Local Borrowers

What is a Community Bank?

Community banks are a lot like they sound — financial institutions that serve local communities. They often focus on specific geographic areas and emphasize building relationships with households and small businesses alike. The Federal Reserve generally classifies community banks as institutions with less than $10 billion in assets.

Though community banks may operate on a smaller, more localized scale, they make up a large share of the banking sector. In fact, community banks comprise more than 80% of the institutions that are regulated and supervised by the Office of the Comptroller of the Currency (OCC).

If you’re looking for the easiest place to get a loan, there isn’t a universal answer, as approval depends on the borrower’s financial profile and credit history. However, community banks may be more accessible for local borrowers and are worth considering when researching options. 

Why Community Banks May Be Better for Local Borrowers

While it may not be the right fit for everyone, some local borrowers may benefit from community banks. Here’s an overview of potential advantages.

Relationship-Based Lending

According to the Consumer Financial Protection Bureau (CFPB), community banks focus on building long-term customer relationships.

Typically, community banks receive their deposits locally and lend to local businesses. This intentional focus helps build relationships over time, as their customers are local residents, and they invest locally as well to spur economic activity.

As a result, community banks have a wealth of knowledge about the local area and may be more willing to support local borrowers. According to the Federal Reserve, community banks may use different underwriting criteria than large banks and may use nonstandard data for credit decisions.

Many small businesses benefit from products and services offered by community banks. According to the FDIC’s 2020 Community Banking Study (the most recent one), community banks:

• Hold 15% of total loans in the banking industry
• Hold 30% of commercial real estate (CRE) loans
• Hold 36% of small business loans
• Hold 70% of agricultural loans

These statistics can be encouraging for borrowers in search of the easiest places to get a loan. While there are no guarantees and eligibility varies by lender, community banks have a vested interest in supporting local borrowers and businesses.

Direct Access

One of the main benefits of community banks is that you get direct access to their staff, which can help you with communication. Typically, there are local branches and the ability to have in-person meetings.

You may be able to talk with a local lending specialist or branch manager who can hear about your situation and learn more about your needs. When you’re searching for the easiest places to get a loan, you want to minimize hurdles. If you don’t have excellent credit, it can be challenging to qualify for financing.

As a borrower, you might not qualify for opportunities that use automated underwriting models. If you don’t meet the specific minimum credit score, your application could be denied.

With a community bank, human review may be a part of the lending process, allowing for more nuance. For example, you might be able to explain a cash flow dip because of local construction impacting your business.

Having direct access can feel more personal and supportive. Plus, it’s easier to share the full picture of your small business when you’re sitting across from someone who is ready to listen. If you already have a bank account with them, you may be able to resolve questions about documentation, cash flow, or transactions faster.

Understanding of the Local Economy

If you have a local business that relies on customers in the community, you want a lender that understands the local economy. Community banks may have a better understanding of seasonal fluctuations and the unique business opportunities and challenges in the area.

Having a lending expert with keen neighborhood knowledge can be an asset to you as a borrower.

When a Community Bank Might Be the Easiest Place to Get a Loan

When searching for the easiest places to get a loan, there isn’t a simple answer. However, you have many options to research, including national banks, community banks, credit unions, and online lenders.

You may benefit from a community bank if:

• You have a local small business
• You have a long business history in the community
• You’re a long-time customer of the community bank
• You’re looking for high-touch customer service and direct communication
• You prefer having access to local branches
• You’re searching for SBA loans, and the community bank is a participating lender

Like with any lender, as a borrower, you should review loan offers, minimum loan amounts, maximum loan amounts, and any origination fees, late fees, or prepayment penalties. If you’re an existing customer, you might want to ask about potential rate discounts on borrowing products.

When Online Lenders and National Banks May Offer Better Loan Options

Though community banks have demonstrable benefits in certain cases, they’re not always the right option. Depending on your financing needs, online lenders or national banks may be preferable. For example, some situations include:

• You want a fully digital process
• You need access to different loan products that might not be available at a local community bank
• You want loan application access 24/7
• You want the ability to compare multiple loan offers through prequalification

Though there isn’t a universal option for the easiest place to get a loan, being able to prequalify and review potential Annual Percentage Rates (APR) and loan terms can help.

It’s often an estimate based on limited data, using a soft credit inquiry, which may look at your credit report but not affect your credit score.  You may still be denied, but it can be a helpful first step.

National lenders may have an array of loan products that can be appealing if you’re comparing different business financing options. Some even offer a loan calculator to help you get an overview of potential loan payments, interest charges, and total costs.

How to Stay in Good Standing After Applying for a Loan

You might search high and low for the easiest places to get a loan and come up short. That’s because each borrower’s financial and risk profile is different. But if you do find a lender that meets your needs, you want to remain in good standing after loan approval.

To keep your credit in shape, stay in good standing with your loan by making on-time payments. Signing up for autopay is a great way to avoid late payments and any associated penalties.

Final Thoughts

Whether you need to cover unexpected expenses or fund more inventory, applying for financing can feel stressful. If you’re investigating options and looking at the easiest places to get a loan, it depends on your specific needs.

Local borrowers may find support with community banks, while others may secure better options with online lenders. As a business owner, it’s essential to do careful research. Look at the fine print, review different types of financing, and compare a range of lenders.