Big banks dominate lending market, but some small businesses find success with community banks
Wednesday, Oct. 14, 2015
For many small businesses, it’s not the idea they struggle with, it’s getting the money to fund it.
Big banks approved about 22 percent of small-business loan requests nationwide in August, while small banks had a loan approval rate of 49 percent, according to Biz2Credit’s Small Business Lending Index.
That’s one reason groups like Local First Arizona, a non-profit organization that promotes locally owned businesses, has made a push for local banks.
Kimber Lanning, the group’s founder and director, said local banks will often send somebody down to look at a project to determine its merits.
About a year ago, Kevin Danzeisen found himself looking for a loan to develop a milk-bottling facility in Laveen, a mile away from his family’s two dairy farms.
The Danzeisens had a new concept in mind for the bottling facility: They wanted to bottle their milk in glass bottles.
But the big banks weren’t in line with the idea, said Danzeisen, the general manager of Danzeisen Dairy.
“It’s a unique business, nobody else was doing it,” Danzeisen said. “So you talk to people about the lending factor and people say, ‘Well, I don’t understand it.’”
After about five months of searching, the Danzeisens found a bank willing to lend them money for their project. Pinnacle Bank, an Arizona-based bank, gave Danzeisen Dairy the loan.
Tim Romano, senior vice president of Pinnacle Bank, said the bank’s business model involves providing services to Arizona businesses like the dairy farm.
“We primarily focus on gathering deposits from local businesses and lending those deposits back out to other local businesses,” Romano said.
The bank, which recently celebrated its 10th anniversary, is a privately held bank with shareholders who are all Arizona residents.
“Our shareholders have a vested interest in making sure that those businesses do well so that it helps grow our local Arizona economy,“ Romano said.
About 95 percent of Arizonans deposit their money with out-of-state banks, and three of those banks control 70 percent of all deposits in the state, according to the Federal Deposit Insurance Corporation’s most recent annual summary of deposits.
Wells Fargo is the top provider of U.S. Small Business Administration backed loans in Arizona and in the country.
Jennifer Anderson, senior vice president and regional manager of the bank in Arizona, said its position as the No. 1 lender in the state comes down to ability.
Anderson said the loan is just the beginning. Customers also have access to products and services that help them with their day-to-day business. The convenience of online banking and a large ATM network make it easier on the businesses as well, she said.
However, Romano said community banks keep the money in Arizona.
“If we’re able to provide financing to a borrower to go expand his or her business, that means they’re buying goods and services from other Arizona-based businesses, and they’re hiring Arizona employees employees,” Romano said. “So there’s a multiplier effect in terms of how that benefits the overall Arizona economy.”
Anderson said Wells Fargo also makes it lending decisions locally and credits the amount of loans her bank provides to its presence in communities.