While big banks were sometimes MIA on the PPP continuum, community banks made small business loans … [+]
America is fortunate to have two marketplace sectors that also happen to be unique in the world: 28 million small businesses and 5,000 community banks. Let me tell you a story about why we’re all even more fortunate – especially during a pandemic – that these two groups are next-door neighbors and close friends.
There are many differences between a small business and a big business. But the most dramatic is something you won’t find on Wall Street: small business special sauce. When this rich blend of ethics, values, and value is slathered over Main Street America, it manifests as one of the most powerful forces in nature: high-quality, enduring relationships built on a foundation of trust.
And these aren’t like your affinity for a big business brand or product – they’re old-school relationships between human beings operating in a new-school marketplace.
It’s ironic that, as essential as it is, small business owners don’t spend a lot of time contemplating their role in producing this special sauce; it’s just innate in them, whether they’re the giver or the receiver in any interaction. But every small business owner is instinctively aware of the power and value of these high-quality relationships, because out here on Main Street, they are, as Obi-Wan would say, The Force.
The two most important and prominent trust relationships in any small business are with customers and employees. But there’s one more that, good times or bad, continues to prove essential: a trusted banking relationship. If you have one, The Force is stronger for your business. If you don’t, well, that causes a disturbance which limits a small business’s ability to survive a shock, like a financial crisis or a pandemic.
Wall Street offers Corporate America something under a thousand different ways to capitalize growth. But for a Main Street business, funding growth other than from organic earnings almost always arises from a relationship with a bank, in the form of a loan.
For over 30 years, I’ve encouraged – begged, scolded – small business owners to pursue their growth capital in the only place where you can transmogrify a relationship with a bank into something exponentially more powerful: relationship banking. Throughout my half-century career of doing business and reporting on the marketplace, community banks have demonstrated that they own the franchise on relationship banking.
In case you don’t know, a community bank: 1) is locally owned and managed; 2) takes into account a business owner’s character when making loan decisions; and 3) makes loan decisions by a local committee, not a computer at a big city bank headquarters spitting out an arbitrary credit score based on a set of proprietary (secret) factors. Character rises to the top of small business special sauce, but you won’t find a factor for it in credit scoring algorithms.
The greatest test of my community bank/small business relationship imperative came after the financial crisis of 2008. During the post-crisis recovery, EVERY big bank – desperately trying to save themselves – went MIA on Main Street. Not only did they stop lending to small firms, but they closed thousands of branches across the country. Bank of America alone closed 1,597 (WSJ). One study showed that, ultimately, 600 counties were served only by a community bank. That’s 20% of all U.S. counties and the equivalent of 10 states.
Meanwhile, from the worst day of the 2008 financial crisis, community banks never wavered in their 24/7/365 support of small businesses. Two personal examples: my bank didn’t stop lending (thankfully), as was also the report from the community bankers I interviewed on my radio program. I’ve never witnessed an industry performance contrast with as bold a line of demarcation as during that post-crisis period. Until now.
For the second time in a dozen years, the U.S. economy has been hit by a shock – abrupt strong and ugly. And just as in 2008, the global pandemic is not the fault of small businesses, and yet, again, this sector has become collateral damage.
Consequently, as we stand today in the eye of the pandemic, once again the power and value of The Force in the form of relationship banking are urgently essential to small businesses. Just as I promised here three weeks ago, as the Paycheck Protection Program was born, developed and executed, community banks have proved that they still practice relationship banking, even under these unprecedented emergency conditions.
While the big bank sector checked in on the PPP continuum anywhere from MIA to making emergency loans only to their best customers (you have and will continue to read the stories), community banks essentially took all comers. During the first five business days after the PPP was authorized, even as rules and documents were being created and changed hour-by-hour, community banks made small business loans of almost $200 million (ICBA).
Know what community bankers call those without a previous relationship whom they helped with their PPP package? “New customers.” BOOOOM!!!
Every day a small business owner can enjoy relationship banking with a community bank is a stellar day. But as millions of Main Street businesses have been reminded in the past two weeks, the power and value of The Force are magnified when your bank has your back as you defend yourself from an invisible enemy.
America is fortunate to have 5,000 community banks – unique in the world, a partner to small business.
Write this on a rock … Believe in yourself as we believe in each other. Surviving is winning. This, too, will pass.