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Community banks and credit unions

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Big banks approve just 2 out of 10 small business loan requests. Small businesses have better luck with small banks (under $10 billion in assets). Small banks approve 50% of small business loan requests and they represent more than one-third of all small business lending. However, as banks continue to consolidate, small banks are an endangered breed, and tend to be disproportionately impacted by tighter regulations in the wake of the financial crisis. The number of small banks have declined from around 14,000 in the mid-80s to around 7,000 today.

Community banks and credit unions have traditionally been key allies for small business, making a disproportionate share of small business loans. In general, working with small businesses is a main focus of community banks. They have a deep understanding of the local community and take that into account when considering loan applications from local businesses. The same goes for credit unions. Credit unions are nonprofit financial cooperatives owned by their members/depositors. They offer similar services as banks, including small business loans, but often have a “community” focus or mission. Their earnings are returned to their members in the form of lower loan rates, higher interest on deposits and lower fees. Credit unions are currently restricted to lending up to 12.5% of their assets.

Small business loan approval rates for 2014:

  • Big banks               20%
  • Small banks           50%
  • Credit Unions         43%


  • Low interest rates, typically between 6% and 10%
  • Long loan terms (multi-year)
  • Commitment to local community
  • Great customer service, personal touch


  • Long application times
  • High hurdles, i.e. in business for 2+ years, good credit, collateral requirements
  • Tightly regulated – limited flexibility
  • Less range of products and technology than big banks
  • Consolidation of community banks and credit unions