Small Banks vs. Big Banks for Business Loans

Deciding between a large and small bank for a business loan can be a real puzzle for small business owners.

When applying for a business loan — whether you’re a startup or looking to expand your small business — you’ll inevitably find yourself weighing to pros and cons of approaching the mom and pop bank with one branch on Main Street or the mega-bank with branches in every strip mall in town.

As with everything in business, there are advantages and disadvantages to each option, which we lay out below.

Getting Started

No matter what type of bank you decide to approach, before filling out a loan application, you’ll want to make sure to have all your paperwork and financial information in order.

Whether it’s a large or small bank, according to, all banks want to know your credit score and  the basics about your business: cash flow, collateral and viability. It’s important that you offer up-to-date and accurate information on your finances, your business plan (especially how you plan to repay the loan), what kind of loans you need and the terms for those loans.

When choosing a bank, keep in mind that you’re hopefully entering into a long-term relationship. To make sure it’s a healthy partnership, make sure to ask questions about where the decision-making takes place, how many people you’ll deal with, and if the bank will meet with you regularly, according to Score. Also,  get to know multiple people at the bank, in case your loan officer leaves or the bank is merged or acquired.

Here are some more things to consider when approaching large vs. small banks:

Large Banks:

  • Are more equipped to offer cash management services
  • Educate business owners about things like putting together an attractive loan application, as well as offering opportunities to network.
  • Offer more online services (ie: sending invoices, collecting payments, payroll, etc.) that can help you save time and money.
  • Tend to charge lower interest rates, according to the Wall Street Journal.
  • Offer more loans backed by the SBA, which offers subsidies to protect banks against default, allowing them to take on riskier borrowers
  • Often rely on computer models when deciding whether to make a loan, which doesn’t always work in favor of small business as local market conditions and the circumstances surrounding each borrower and business are so varied, according to an article by the SBA.

Small Banks:

  • Don’t rely as heavily on credit scores as larger banks. They are more likely to factor in non-quantifiable qualities, such as your character and relationships, which can make you more worthy of a loan than you look on paper.
  • More likely to lend to small businesses. Community banks have increased their lending to small businesses by $3.5 billion, in part because of the Small Business Jobs Act of 2010, according to the Small Business Administration. While large banks have the ability to lend hundreds of millions of dollars, they might view smaller loans as more of a hindrance than a help to their bottom line.
  • Have a better understanding of the local economy and can help you get to know the area where you’re business is located and help you navigate the business climate.
  • Give you more ties to the community, and help build a report with your customers and clients.
  • Are interested in investing in their local community, which means they’re more likely to help support local business.
  • Don’t have as much bureaucratic red tape for a small business owner to navigate. The banking officer and credit officer are most likely in the same building, which means faster results and more personalized solutions for your business.

Learn more about business loans on

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The Editorial Staff writes on topics relevant to small and medium-sized business (SMB) owners. Posts cover best practices, top tips, and studies that deliver insights specific to SMBs.

Our team has backgrounds in journalism, English, philosophy, marketing, entrepreneurship and management, providing us the opportunity to share unique viewpoints on all things affecting small and medium-sized businesses.

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