Frank Capobianco, president and chief executive officer of Capo Brothers, a truck sales and service company in Ronkonkoma, New York, spent 35 weeks last year trying to get a $1.3 million real estate loan refinanced with HSBC, his bank at the time. Whenever he thought he was close to a deal, HSBC told him it would take a little longer. Finally, tired of waiting, he moved his business to a smaller community bank, Teachers Federal Credit Union. In just a month, his loan was approved — and at better terms than HSBC had offered.
“The biggest problem I have with the big banks right now is that we’re paying for their mistakes,” Capobianco says. “Plus, with a big bank you can’t really talk to the people who are getting your loan approved.”
Listen to related podcast: Thinking of Moving Your Money to a Smaller Bank?
Capobianco is one of the many small business owners who are disillusioned by their experiences with big banks and are taking their accounts to credit unions and community banks in a bid to find better customer service and more accessible credit.
Last year community banks were already seeing an uptick in new business, according to a March 2009 report by the Independent Community Bankers of America. Of the 473 banks surveyed, 55 percent saw an increase in deposits, while 57 percent saw an increase in new retail customers. There are no current numbers on the amount of money moving away from big banks — those figures are released every June 30th — but community banks are still reporting an uptick in business deposits and loans.
Recently, The Huffington Post has encouraged this trend with a Web site called MoveYourMoney.info, which sends users to two national associations that represent credit unions. One of these organizations, the National Association of Federal Credit Unions, reported that its number of searches had tripled since a link was posted on the Move Your Money site in January. Meanwhile, even President Obama seems to be in on the trend, suggesting in his 2010 State of the Union Address a plan to earmark $30 billion in TARP funds for community banks to stimulate lending.
The emphasis on small banks is fueled in part by the continually shrinking amount of credit offered by big banks, says Richard Milton, managing director of MainStreet Advisors, an investment advice service. Between April 2009 and October 2009, the nation’s four largest banks — Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo — cut the amount of business and commercial loans they made by 15 percent combined, says FinancialStability.gov.
Banks are hamstrung because they are still dealing with losses, explains Don Mann, a banking consultant who is also the regulatory liaison and advisor to the Michigan Association of Community Bankers. However, some banks just aren’t lending because they can’t find qualified buyers. “There are plenty of banks with ample liquidity on their balance sheets, but they can’t find creditworthy customers,” he says.
In December 2009, Cindy Allen, founder and CEO of ETA Advertising in Long Beach, California, moved her business accounts from Chase and Wells Fargo to Farmers & Merchants Bank, a community bank based in Southern California that has 6,500 customers. She started considering the move after being denied loans by both Chase and Wells Fargo. “I have stellar credit and plenty of equity. I have always been a good business client and have substantial amounts of money in the bank,” she explains.
Allen hasn’t regretted making the switch. “I had to sign some paperwork but was really busy and couldn’t leave the office. The person I was dealing with at F&M actually came over to the office and brought me the paperwork. It’s nice having that personal touch.”
This is something that many of Gilles Gade’s customers report. Gade, the chairman of the board and chief financial officer of Cross River Bank, a community bank with 1,000 customers and $81 million in deposits, says he is capturing business customers fleeing industry giants like Bank of America and Citibank because they realize big banks are no safer than smaller ones. “They’re seeing there’s no more reason to suffer through customer service that takes you from ‘Press 1’ to ‘Press 2’ to ‘Press 3’ before actually speaking with someone,” he says. “With a community bank, you call and someone who knows you and your business picks up the phone right away.”
The reason, says W. Henry Walker, CEO of F&M Bank, is that there is less turnover in a community bank. “Smaller banks have more stability of staff and personnel. The ties between customers and employees can become stronger. The team is more cohesive.”
This makes it easier, as Mike Faith discovered, for smaller banks to make lending decisions based not just on credit scores and liquidity, but also on business plans, experience, and past performance. Faith, CEO and president of Headsets.com in San Francisco, moved more than $30 million in and out of accounts at Wells Fargo one year, but was still turned down for a loan. He switched to Tri-Valley Bank, which saw a 3 percent growth in average assets in its fourth quarter and a 5 percent growth in its number of loans.
Faith says it was a good move, because when he opened a credit line recently he was able to get face time with the three people who would be helping to make the approval decision.
Of course, this recent interest in small banks doesn’t mean the big banks are going away anytime soon. Often it’s a paperwork hassle to change banks, and many smaller banks have a limited number of branches and fewer ATM machines, which can mean more out-of-network ATM fees — especially when traveling. What’s more, small banks often have less loan and credit choices. Capobianco of Capo Brothers still has a business line of credit with HSBC because his smaller credit union doesn’t have a revolving line of credit that’s right for him.
Plus, just because you move your business to a local bank doesn’t automatically mean you’ll get credit, says Mann. “All banks right now have a diminished ability to make loans,” he says. The one bright spot, however, is that even if you can’t get a loan from a small bank, just having your money in one means you’re probably helping your local community.
Karen J. Bannan is a freelance writer in New York. Her work has appeared in more than 100 magazines and newspapers, including BusinessWeek Online, Forbes, The Wall Street Journal, and The New York Times.