Bank consolidation has been a fact of life for small businesses for over a decade. For example, our business in North Carolina started out banking with NCNB (North Carolina National Bank), which was already a large state wide banking system that grew in part from acquisitions of smaller community banks.
As consolidation began to accelerate around the late 1980s, NCNB purchased First RepublicBank of Texas and soon became NationsBank. We saw our service from the bank change. The loan officers we worked with seemed to change as quickly as the seasons, we were no longer important or large enough to be part of their private banking system, and we noticed a change from a personal relationship to amore formal relationship with the bank. We soon decided to move our banking relationship, which included over $3 million in debt financing, to a smaller regional bank.
The Office of Advocacy of the U.S. Small Business Administration released a study this week that reports that the way in which bank holding companies (BHCs) grow, through either outright merger of non-merged acquisition, has a direct affect on its small business lending practices.
The study’s findings suggest:
– In general, larger BHCs tend to do less small business lending, as a percentage of total business loans.
– The organizational form of a BHC relates to small business lending. When BHCs acquire other banks — but do not merge them — small business lending is little affected. In contrast, if bank portfolios are merged and integrated into larger banks, their small business lending declines.
“Financial innovation and deregulation are changing the services banks offer to their small business customers,” said Thomas M. Sullivan, Chief Counsel for Advocacy. “Many of the changes have been positive and have opened up capital markets to more firms. Others are changing the relationship between what were once local banks and their customers. This study reports on one aspect of those changes and provides sound insight into the evolution of small business lending by banks.”
So what should an entrepreneur do if their bank is acquired or merges? I would recommend nothing at first. Some mergers of smaller or regional banks can be positive for small businesses as services can expand and improve. And nothing will likely change in your banking experience right away.
Pay attention to your banking relationship. See what happens with the people you have been working with at your bank and if there are enough changes that begin to concern you may want to start looking for a new bank. Another recent report from the SBA shows that some banks are much more focused on small businesses as clients. There should be options for you to consider. As one former business associate always reminded me, “There is a bank on every corner.”
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