Our firm trades at one of the largest banks in the US. I won’t name the bank, but I’m sure you’d produce the name in 4 guesses or less. Many of our clients also bank at these institutions in the top 4. Here’s one thing I’ve learned about the big banks in the last 6 weeks — they are slow to move. Too slow, really.
COVID-19 Paycheck Protection Program (PPP)
The primary source of my anecdotal assertion is the Paycheck Protection Program (“PPP”). At Dulin Hassett, we have assisted a large number of our clients in applying for and securing approvals for these PPP loans. Without exception, our clients who bank with small, local banks were funded significantly faster than our clients who bank at the larger national banks. Many such clients received funding in the first tranche before all appropriated funds were exhausted. Still more received funding earlier when the second tranche was appropriated by Congress. We’re talking weeks before our clients at the larger banks. A few weeks’ delay in PPP funding is an eternity given the current economic conditions. Businesses, like the people who run them and work for them, live and die on cash flows. As the dust begins to settle on the PPP, I am compelled to re-think our banking strategy. Sure, I speak to my banker maybe two or three times a year. I know his name and email address, and he refers clients from time to time. No complaints there. Many of our clients would say the same. The online banking features are intuitive, well-organized, and very useful. All good indicators of an institution who has their act together.
COVID-19 Crisis Changes Banking
Then came the Covid-19 crisis, shutdowns, and an unprecedented (in our time, anyway) economic downturn. One might assume that the larger banks, who have significantly more resources in terms of human and financial capital, would be able to respond quickly to meet their customers’ needs under the new PPP. While it’s true that many banks faced a formidable task in implementing the program, I was shocked to see the smaller, local banks outperforming the larger banks. The smaller, local banks took applications sooner, approved them faster, and provided the funds in record time. Smaller banks, with far fewer resources than the large banks, served their customers better. How did they do it?
Why Smaller Banks Can Process Loans Faster
I suspect that the smaller, local banks actually have a competitive advantage based on their size. Smaller businesses are simply more agile and can move faster. There are fewer levels of bureaucracy gumming-up progress. Decisions are made locally, by folks who are familiar with the people involved. We cannot discount the role played by relationship-driven banking. Smaller banks tend to cultivate longer-term relationships because turnover is lower compared to larger banks. These bankers simply know their customers more intimately, and this allows for faster processing of loans.
Consequently, many of our clients are contemplating a move to smaller, local banks. It is something we are contemplating ourselves. Interest rates paid on savings accounts has always been less than impressive at the larger banks, and we’re seeing better rates in general at smaller banks. We are also beginning to see the value of a long-term relationship with a banker. It’s unfortunate that it took a shock to the economy to draw back the curtain on this. I, for one, want to work with a banker over the long term, and I want to know that I’ll get what I need, when I need it, from a banker who really knows my firm and my business.
Working With Dulin Hassett
I’m sensing that we will see a big shift in the coming months. Small businesses everywhere would be well-advised to re-think their banking and consider a move from larger banks to smaller banks. We’ll do our best to keep you posted on updates as they progress. And as always our firm is working around the clock to prepare tax returns, file for refunds, provide estimates, and assist you in any way that we can during these challenging times.