Small Businesses and Banks

The U.S. Small Business Administration's Office of Advocacy has issued a study suggesting that the banking industry's consolidation is hurting small businesses.



Small banks tend to extend more credit to small businesses than do larger banks. Thus, when small banks get swallowed up and become part of large banks, small businesses no longer have as much access to bank credit.



However, small businesses in the study were still getting credit. They just turned instead to non-bank financial institutions such as credit unions and brokerage houses.





You can conclude a number of things from this study. One conclusion is that small businesses need small banks. However, banks should take notice of another possible conclusion: Non-traditional financial companies appear to be stepping up to the plate and filling the role that smaller banks traditionally filled for small businesses.