Community Banks are Purpose Built to Serve Small Businesses

In the US, there are 32.5 million small businesses that employ 46.8% of the private workforce and generate 44% of US economic activity. The National Federation of Independent Business (NFIB) surveyed a random sample of 669 of its members, all of whom are small business owners, in April 2023 to gain insight into their banking needs, along with their views on the banking sector. According to the survey, most small businesses (two-thirds of respondents) choose to use “small and regional” institutions — good news for many community banks.

However, one third of companies still bank with large, mega-banks. Additionally, 87% of respondents said that customer service was the most critical factor when choosing a bank for business purposes. Convenient location (66%), low banking fees (62%), and online banking capabilities (60%) are the next three most important factors for small businesses.

Not many financial institutions fare well, according to last year’s J.D. Power U.S. Small Business Banking Satisfaction Study. Indeed, just over a third of small business banking customers believe their institution appreciates their business, and even less feel their institution actually understands their business. However, the study also found that small business banking customer satisfaction is significantly higher – 73 points higher – when a dedicated account manager is assigned to the customer.

Given how crucial customer service is to these customers, it was somewhat surprising to see that only 41% talk regularly with someone at their bank about their business’s finances. Meanwhile, 78% reported that their bank had not reached out to them following the collapse of certain banks earlier this year and the subsequent banking crisis.

Bigger is not Safer

When choosing a banking relationship, bigger is not always better and certainly not always safer. However, following the failures of SVB and Signature, many businesses understandably thought they needed to move to a big bank to ensure the safety of their deposits. A lot of our clients started with this mindset, but as they thought about it more deeply, they began to get concerned about the complexity of the bigger banks and the lack of access to decision makers, leaving them nervous and in the dark.

A smaller bank like Freedom Bank of Virginia that is based locally with access to executive management and a more straightforward community banking business model is often a better solution. We, too, are safe with a diverse deposit base with only 21% uninsured, ample liquidity, and abundant capital at 13.4% Tier 1 Capital Ratio (twice the regulatory requirement). Furthermore, our clients tell us that larger banks come with a system of bureaucracy and risk avoidance that makes it difficult to work with them. 

On the surface, it may seem less risky for a business to work with a big brand name bank. However, we consistently hear from our clients that these institutions are rigid and unwilling to proactively take risks to meet their needs. Freedom Bank’s culture of IDEAS calls us to work innovatively on opportunities with a can-do attitude and find a way to “get to yes” for clients. Furthermore, we offer a full suite of reciprocal deposit services that allow clients to have 100% of their funds FDIC insured regardless of amount if that is a driving priority.

I recently spoke with Damon Smith, CEO of BIGEYE DIRECT INC. , and he told me, “We have been working with Freedom Bank for years during a time when our company has experienced substantial growth. Freedom Bank is always ready to help and best of all, you make the experience an easy one. The Bank’s sense of urgency in delivering solutions to our needs is unprecedented. And you always find a creative way to get to “yes” to ensure we have the capital to keep growing our company. We also enjoy direct access to our talented bankers, making it easy to get answers and easy to get help when needed, giving us peace of mind and facilitating an efficient closing process.”

A question business owners should ask themselves is “What am I sacrificing in relying on the security of a big bank and would a more agile bank be willing to understand my needs and offer proactive ideas be a better solution?”

Economies of Service

Business owners have often banked personally with the same bank over the many years where they had their first deposit account and may see the economies of scale and the branch network as an advantage. The reality, however, is that a business owner’s needs change as their business grows and that relationship may no longer best serve their needs as an entrepreneur.

Our clients tell us that they do not want to go to a branch, and they certainly do not want to rely on a 1-800 number to get support from the bank. Economies of service are more important to them and access to a talented banker who understands their business and industry who can provide ideas and solutions is their top priority.

This was made clear to our clients during the pandemic, when access to PPP loans was needed to finance operations, yet not easily accessible at their incumbent bank. Our entire team at Freedom harnessed our economies to serve customers and deliver critical funding from the PPP program.

In fact, community banks overall originated more than $210 billion in PPP loans, saving an estimated 20 million jobs — compared to just $104 million issued by the larger institutions. The data suggests that community institutions used their local economy expertise and small business relationships to deploy PPP loans more effectively.

Yes, it can be challenging to change banks, but you just might not be as important to your bank as you once were as they pursue their economies of scale. At Freedom Bank, each client has a dedicated banker supported by a talented team, all of whom seek to understand your business’s needs and deliver creative ideas, most often in person.

Rich Nelson, Owner of Nu Look Home Design , recently shared with me, “When I approached the bank with the proposed business acquisition, they quickly provided a team of entrepreneur- minded bankers to understand the business and structure the optimal acquisition financing. This enabled me to focus on the successful ownership transition and exciting future growth of the business. Freedom’s knowledge of SBA financing and thoughtful advice on the M&A process were critical to closing the transaction. The bank has an amazing team.”

A question that I think business owners should ask themselves is, “When my next big challenge arises, how important is it to have a bank with an entrepreneurial DNA to understand my business’s risks and the discipline to offer smart and tailored solutions?”

Curated Technology

Business owners often assume that the big banks have better technology since they have more in-house developers and more resources to allocate forward product development. However, in reality, these banks have a one-size-fits-all approach, with old legacy systems that may not actually serve your needs well or are easy to use.

We hear from our clients that they like the way we identify industry-leading software solutions, conduct due diligence on the vendors, and ensure all our solutions are safe and tailored to small business clients. We have built a range of digital business solutions, including invoicing, bill payment, payroll processing, and cash flow management, all integrated within our onine banking system. With single sign-on functionality and tailored security access, our operating system so much easier for business owners.

At Freedom Bank, we build or buy purpose-built solutions with our clients’ needs in mind, not what fits best with our other legacy systems. Our clients also tell us they like the fact that the technology is coupled with personal training and a dedicated team of treasury services professionals to ensure optimal use of the technology and maximum-security protections. Another benefit is that we pass along all the savings from expensive software development to you in the form of lower fees and higher deposit rates.

I recently spoke with Mark Brown, CEO of Eastern Applicators , and he shared with me, “Freedom Bank has been our long-time lead credit bank and has played a critical role in helping build our company. More recently, the expert team at Freedom helped us create a more digital treasury environment for our employees and vendors that has greatly improved the efficiency and security of our cash management activities. We moved all of these activities to Freedom because they have all of the treasury capabilities of a big bank along with a committed and responsive team who puts our needs and concerns first.”

A question that business owners should ask themselves is, “How is technology changing your life and do I want a bank with a one-size-fits-all solution, or do I want to select from industry-leading solutions, and access them via one dashboard with upfront training and ongoing support?”

Summary

In uncertain times, it is critical to have a financial partner to understand risks in your business and help you take advantage of opportunities. Community banks are a natural fit for small businesses on account of their community connections, local knowledge, small business understanding, and ability to offer a fast and personalized service. Freedom Bank is focused on serving the needs of these businesses owners in the Greater DC Region and our dedicated industry verticals nationally. We have a bias toward yes, an entrepreneurial DNA, and curated banking technology.

The best question you can ask is, “Are you a business owner that thinks that you could benefit from an entrepreneurial banking partner?” If the answer is yes, then contact Freedom Bank today and let us put our IDEAS to work for you!