Consolidation in the banking industry leaves many business owners guessing whether the same relationship they established with their bankers will change.
Maybe the bank you chose not to do business with years ago buys the bank you trusted for years. Or perhaps the bank you thought focused on commercial and industrial businesses isn’t interested in reaching out to these customers. “As banks consolidate, many customers re-evaluate their banking relationships,” says Craig Johnson, president and CEO of Franklin Bank in Southfield. “Mergers often present shopping opportunities, and community banks that have a stronger connection with the local business environment become attractive and viable alternatives.”
Smart Business asked Johnson to discuss how to shop smart if you are reconsidering your banking relationship and what advantages community banks provide to local business owners.
How do large bank consolidations affect business owners?
Along with name changes come policy, procedural and people changes. Generally, as banks get bigger, customers have less access to decision-makers. You see a fallout of people who decide to leave for other financial institutions. This turn-over makes most customers feel uncertain about their relationship with the bank, so consolidation often causes them to step back. If they have been thinking about shopping other banks, this might be the push that leads them to consider other options.
What initial questions should a business owner ask the bank following an acquisition or merger?
It’s important to find out how the consolidation will affect policies and procedures. You need to ask tough questions. Meet with your banker face-to-face and ask him or her to explain the philosophy of the new organization. Will there be changes in the handling of deposit accounts, funds availability, sweep features and other services? What is the bank’s new focus? Ultimately, you want to ensure that the consolidated organization is still the best bank for your business.
What advantages do community banks provide for business owners?
The hallmark of community banking is access. Decision-making for loans or other services is local. You can talk to the president of a community bank; you can directly call or e-mail managers. On the other hand, as banks get bigger, their policies and procedures tend to be more defined and restrictive.
Community banks are different. If you have a strong relationship with your local banker and your business is struggling, a community bank is more likely to stick by you until you ride out the tough times.
What are some community banking trends you notice in the Detroit market?
A number of start-up community banks launched in the last 24 months or are on the drawing board now. There are talented banking professionals in the area who don’t want to be a part of a larger, consolidated organization. So they go out, attract capital and seek charters to start community banks.
What you will see in some cases are banks that serve specific niches, such as ethnic populations. There is a bank seeking a charter that will focus on Asian and Indian customers. That is a narrow, but solid, focus. Of course, that is just one example of how community banks can serve niche populations. More generally, a community bank may focus on the small business owner or a certain industry sector. Larger, more established community banks provide the same products you’d find at a large bank, but with more flexibility and personal service in most cases.
What should business owners consider if they are shopping community banks?
First and foremost, look at where you are in the life cycle of your business. Are you a start-up organization that needs capital to finance your entry into the marketplace? Are you an established company that needs a significant line of credit to back operations upgrades and equipment purchases?
One down side to start-up community banks that have not been in business for long is that they tend to have a fairly limited amount of money they can lend per customer, and if they do it right, they are fairly conservative with those loans.
Can community banks grow and accommodate an aggressive business’s commercial banking needs?
Absolutely. The key is to make sure you position yourself with a community bank that can service all your needs and has a positive track record. Determine the senior advisers and investors, and ask about the bank’s mission. What type of customer does it cater to, and do you fit that profile?
Because community banks understand the local business environment, their associates often serve as trusted advisers and champions for their customers.
CRAIG JOHNSON is president and CEO of Franklin Bank in Southfield. Reach him at email@example.com or (248) 386-9860.