Community banks across the country are capitalizing on the opportunity to win market share after some small business owners were dissatisfied with how their banks handled emergency loans.
After a negative experience trying to apply for a Paycheck Protection Program loan with their bank, some small business owners have switched to a smaller bank. The Small Business Administration's program helped community banks beat big banks on loan growth during the second quarter. Some community bankers said they were able to beat out larger banks by offering local decision-making and superior communication during the PPP process.
Year-to-date, community banks more than doubled their portfolios of commercial-and-industrial loans under $100,000 thanks to the PPP program, growing 107%. By contrast, banks with more than $50 billion in assets increased such loans by 18%.
"It was really a brand damager for so many of these larger institutions," Atlantic Union Bankshares Corp. President and CEO John Asbury said in an interview. "If there's one point I heard over and over in terms of the experience these businesses had with the larger banks, here's what it was: 'No one could help me.' Consistently they would call up their local contact...and they were consistently told 'I can't help you, call 1-800-whatever.'"
For small C&I loans that were over $100,000, large banks were more competitive. Banks with less than $10 billion in assets still outpaced all other banks on year-to-date loan growth in the $100,000 to $250,000 bucket. For small C&I loans between $250,000 and $1 million, banks over $50 billion posted the most growth but community banks were not far behind with a growth rate of 84.89%. Small commercial and industrial loans are defined by the Federal Financial Institutions Examination Council as loans of $1 million or less. Regulatory data on these loans are collected at the end of June and December.
Small business owner Christina Nicholson switched banks for both personal and business accounts after trying to apply for a PPP loan with JPMorgan Chase & Co. "When you really need them and you're at the bottom of the totem pole, it's frustrating," Nicholson, who owns public relations agency Media Maven, said in an interview.
Since her team consists of contractors, she could only apply for a loan for herself per the PPP loan eligibility requirements. After a week of working through the application with a banker, she received an email from the banker that said they could not assist.
"They didn't say why, they just sent me a link to a page that listed a variety of reasons," Nicholson said. After reviewing the eligibility requirements and inquiring with another bank, Nicholson said she believes it's because her loan would have totaled less than $1,000.
A JPMorgan spokesperson declined to discuss Nicholson's specific case but did say the bank was committed to helping its clients with PPP loans. "[JPMorgan Chase] provided more funds to small businesses through PPP than any other bank," a spokesperson for the company wrote in an email.
Nicholson recently opened an account with Columbus, Ga.-based Synovus Financial Corp., she said, leaving Chase after more than 20 years.
"[I want] a smaller, more personalized bank, not something so big where you don't really matter to them because of all their other customers," she said.
Many community banks report small business market share gains due to PPP frustrations with their existing bank.
"There's just thousands of examples of that across the country where community banks won and obtained good business, the full relationship business of good companies that were banking with non-community banks and we have numerous examples of that at West Bank," said David Nelson, president and CEO of West Des Moines, Iowa-based West Bancorporation Inc., which has $2.74 billion in assets.
Community banks were able to win these relationships by being more communicative with customers during the application process, Nelson said in an interview.
"If the information was incomplete or inaccurate, you had to communicate back with the borrower, and the big banks just couldn't do that because they had to send these things off to a different geography at every step in the process," he said. "They were not processing them locally like West Bank where the whole process took place in the same building."
Atlantic Union's Asbury agreed that the ability to have local decision makers helped community banks stand out. About 28% of the 11,676 PPP loans that Richmond-based Atlantic Union Bankshares' approved were new-to-bank customers.
"[PPP] demonstrated something we've sensed all along, that local teams and leaders have very little authority in terms of decisions that are made at these large institutions," Asbury said. "It was a proof point about the responsiveness of local decision-making authority."
Asbury said he heard of many examples where small business owners did not receive a PPP loan and were confused as to the reason why or even the status of their applications.
"These massive organizations, they're not going to be very agile or responsive to any individual customer," he said. "All they knew was they weren't approved and nobody told them what their status was. That's when we saw a big uptick in people coming to us."