What Is a community bank? How does a community bank work? How many community banks are in the US? Get to know the world of community banks and why they can be the best option for your personal or small business banking requirements.
You might want to investigate a community bank if you’re looking for a new banking arrangement. Community banks may have various perks and advantages that major national banks may not, depending on your financial condition and personal preferences.
Community banks are sometimes referred to as “relationship bankers,” as they have a tight relationship with their clients and a unique understanding of their areas. They may use less formal underwriting for credit decisions than bigger banks, allowing consumers and small companies to obtain loans that might otherwise be denied by a larger bank.
What Is A Community Bank? Benefits, Things You Should Know [2023]
A community bank is a depository or lending organization that serves primarily companies and individuals in a local geographic region. Customers’ personal interactions are emphasized by community banks. These smaller banks often give loans to local firms and people who may not qualify based on the more standardized criteria employed by larger banks since they lack the product breadth and branch networks available at larger institutions.
Although “community bank” has no formal definition, it is often defined as a smaller bank that serves consumers in a specified geographic region. When it comes to lending choices, community banks favour relationships and even family histories, whereas larger banks depend more on credit scores, income, and other quantitative data.
According to the FDIC’s 2020 Community Banking Report, the United States had 4,750 community banks with over 29,000 branches at the end of 2019. Community banks account for 15% of all loans made by the banking system, while they make 36% of all small company loans and 70% of all agricultural loans.
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How Do Community Banks Work? [2023]
Now that you know what is a community bank, let us get to know how they work.
According to the Federal Deposit Insurance Corporation (FDIC), community banks are those with less than $10 billion in assets. Community banks provide traditional banking services in local areas, receive deposits locally, and make the majority of their loans to local companies.
Unlike bigger publicly listed banks managed by investors, community banks are more likely to be privately owned and governed locally. Unlike bigger banks, which may take deposits in one state but lend in another, community banks direct their loans to the places where their depositors live and work, allowing local companies and communities to grow.
Community banks generate their money largely by charging interest on loans to local citizens and small companies. The cash originates from a variety of bank accounts owned by depositors. Because they aren’t publicly traded, they aren’t required to answer to shareholders.
Most place a premium on “relationship banking,” which may be especially beneficial to small company owners and newcomers looking to buy a house. The person or business who makes the initial deposit starts a chain reaction that benefits many other companies and individuals, boosting the local economy. The interest the borrowers pay generates income for the banks, which supports the economy by providing employment inside the banks and boosting their capital, allowing them to lend even more money.
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What Are The Advantages Of Community Banks? [2023]
When we compare community banks with big banks or other banking, we get to know various advantages and disadvantages of community banks. So, here are 3 advantages of community banks that you must know:
3 Advantages of Community Banks You Must Know
- Services and Goods
- Invest in the Community
- Flexibility
1. Services and Goods
Some community banks provide a broader choice of financial services and products, such as investment accounts, specialist corporate banking solutions, and international flexibility. Consider a community bank if you’ve had a negative banking experience, or have struggled to receive credit from larger banks.
2. Invest in the Community
Some community banks are also classified as Community Development Financial Institutions, or CDFIs, with a specific goal to provide underserved areas with economic possibilities and financial self-sufficiency. CDFIs are community banks or credit unions, and there are over 1,000 of them in the United States.
3. Flexibility
Community banks have less formal loan approval procedures since they are focused on personal relationships in local areas. In comparison to a larger bank with stricter lending rules, you may find that community banks are more flexible in working with you.
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Community Banks vs Big Banks: Explained [2023]
Let us get to know the difference between community banks vs big banks, which is better and should you consider banking locally?
- Individualized attention
- Making Local Decisions
- Small Business Expertise
- Qualifications for Loans
- Accessibility
- Online Presence
1. Individualized attention
The needs of local individuals, companies, and farmers are prioritized by community bankers. Community bankers are your next-door neighbours, working and living in the same building as you. They, like you, are invested in the prosperity of their local communities.
2. Making Local Decisions
Because of the emotional and physical ties to the community, community bankers are frequently active in their local communities. As the decisions are made locally, community banks can make quick judgments on company loans.
Unlike banks that take deposits in one state and lend in another, community banks direct the majority of their loans to the areas where their depositors live and work, assisting in the vitality and growth of local communities.
3. Small Business Expertise
Community banks understand the requirements of small company owners since they are themselves small companies. Lending to small companies and farms is their primary interest.
4. Qualifications for Loans
Many community banks are ready to make loans based on a borrower’s character, family history, and discretionary expenditure. Big banks are frequently bound by more stringent loan policies, applying impersonal qualifying requirements to all loan decisions regardless of individual circumstances.
5. Accessibility
Major national banks often have a nationwide or worldwide ATM network. Some even offer customer care 24 hours a day, 7 days a week. Smaller community banks may not offer the same degree of service and availability as larger banks.
6. Online Presence
Depending on the features you require in your mobile app and other aspects of your digital banking experience, your local community bank may not be able to meet your expectations. However, this isn’t always the case. There are a few smaller ones that offer a digital experience.
Conclusion
Community banks play an important role in the economy of the United States, offering loans and savings accounts to millions of people. They are more than brick-and-mortar locations because of their reputation for local presence and personal ties. Many community banks are innovating and investing in new digital technologies. You may opt for a community bank if you’re searching for a new bank account, a loan, or a new home base for your personal or small company accounts.
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