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Small Businesses: Under-banked, But Not by Choice

Christina Sommer |

Last week, I was a panelist at the National Federation of Community Development Credit Unions Conference in Baltimore. The Federation caters to credit unions serving the underserved. I was impressed with the turnout for the event and more impressed with the conversations and questions. The credit unions, many of them quite small, have been doing big things in their local communities. These credit unions focus on educating the community on financial matters and providing the support needed to get individuals on their feet.

The vibe at this conference was so different from many of the other conferences I attend; primarily in that the discussion was not about revenue or expense but all about serving others.  Serving others in this context was about consumers—single mothers, immigrants or those who are simply under-privileged.  These credit unions lend money and support to their neighbors and friends whom they know personally and see in the grocery store.

It is the way banking started, yet we are so far away from that today.  Large national banks dominate the US landscape; the personal touch is becoming a thing of the past.

It got me thinking about small businesses and how we do a better job of supporting them, helping them get past those first critical years. In fact, small banks make more small business loans than large banks. Though small- and mid-sized banks account for about one-fifth of all bank assets, they account for 54 percent of small business lending.  This statistic, while shocking, makes sense to me.  Small business lending should be about more than analytics.  It’s about relationships.  Banks that live in the community, understand the market dynamics, and have personal relationships with the owner are more apt to take a chance on that business owner.

Small businesses are the lifeblood of the economy yet many of them are under-banked, though not by choice.    We as an industry need to better support small businesses and taking a page out of the credit unions’ book just might do the trick.

Topics: Economic Outlook, Inclusion

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