Community or local banks are created to serve local businesses and individuals. The designation of a bank as local is determined by the charter- that is, the rules that govern the structure and organization of the bank and the regulators who sign off on the business plan. Each time a deposit is made, the money is kept in the local economy, instead of being distributed throughout the country as with national banks. Because community banks only answer to their own board, loan officers are often easier to gain access to in person and business owners can more easily develop a relationship with an individual loan officer. It also means that loan decisions are made by local bank workers who may be more familiar with an individual business or owner and more willing to work with you. The primary disadvantage of working with a community bank is that due to their smaller size, they are often limited in the amount they can loan and the types of loan products they can offer. For most small to medium sized businesses, a local bank will provide adequate funding options for most needs.

A credit union is a not for profit financial cooperative. Credit unions do not issue stock, and they do not pay dividends to investors. Instead, the profit made by the banks is returned to the members in the form of lower loan rates, higher rates of interest on deposits, and decreased fees. Because of their status as member-owned, credit unions are considered to be non-profits and are exempt from all Federal taxes and most state taxes. Credit unions are normally managed by a board, which is made up of volunteers. In most cases, individuals who want to join the credit union must qualify through affiliation with a specific group or their employer. Credit unions, like local banks, are often more accessible to local business owners. However, many credit unions do not offer a large selection of financial products for businesses since their primary focus is on individual members. Credit unions do offer highly competitive rates for loans, and if you are considering a personal loan to fund your business, you may find far better terms with a credit union instead of a bank.

Large, national banks are those that have big names that you have heard of. These banks control tens of billions in assets, and they are able to make loans of any size. However, because these banks have operations spread across the country, it is difficult to find a loan officer that can make lending decisions quickly. In most cases, you will need to work with several different areas of the bank in order to get a loan. Large banks are more selective on who they will offer a loan to, and obtaining a loan may be more difficult. However, a large bank will never outgrow the needs of your business, and you can work with them from anywhere in the country.

Choosing the right financial institution for your businesses needs will depend on what is important to you. Community banks and credit unions offer local decision making and in many cases, provide high quality customer service. Credit unions often provide lower interest rates due to their non-profit status. Large, national banks offer you the ability to grow without worrying that you will outgrow your lender. The decision that you will need to make is which one offers the best combination of services to support you and your business as you grow.