The competitive landscape for community banks today looks very different than it did just a year or two ago. The fallout from the subprime mortgage collapse and ensuing credit crisis has claimed its share of nonbank credit providers, such as mortgage bankers and specialists, captive finance companies and monoline credit card companies. Many of these lenders arose because they could take their products to the secondary market, but the turmoil in securitization has dried up many of their funding sources, either putting them under severe constraints or out of business entirely.

The good news is that this dynamic environment may present unique opportunities for community banks. In many markets, there is demand for certain types of lending that is not being met – especially certain kinds of mortgages, auto loans and home equity lines of credit. Commercial lenders can take advantage of this by looking at their small business borrowers in a different light.

For example, many small business owners – especially of startup firms and microbusinesses – use HELOCs and personal credit cards to fund their businesses. But this type of lending is being severely curtailed in some markets. To help meet this need, consider repackaging consumer credit options like these into a small business package.


In addition to presenting opportunities, this changing environment is also posing new threats to some community banks. In an effort to deal with their own challenges and grow market share, some large regional and super-regional banks are making inroads into smaller banks’ territories, especially on credits of more than $1 million.

Larger community banks are also a relatively new form of competition. Those with multiple branches and ATMs (including grocery store branches) within a defined geographic area are able to offer customers a level of convenience closer to that offered by big banks. The real competition today is for deposit dollars – and the more locations and convenience a bank offers, the harder it is to pry their customers away.

To better compete, some community banks are expanding their electronic banking and cash management capabilities. Acquiring low-cost deposits is a primary but hard-to-achieve goal, made more difficult when customers are tied to their existing bank via these services.

Remote Deposit Capture (RDC), for example, is becoming a much more common offering from community banks – in fact, it has almost become a “price of admission” service for the small business market.


Of course, there are some nonbanks and credit providers that specialize in working together with banks to meet small business borrowers’ needs. Asset-based lenders and factors are the best examples of this.

Sometimes, small businesses find that they can no longer qualify for traditional bank financing, usually due to rapid growth or other temporary circumstances that have adversely affected their balance sheet. Referring customers like these to a commercial finance company for accounts receivable financing or an asset-based loan creates a win-win scenario: The customer gets the financing necessary to continue to grow, while your bank likely retains the deposit relationship and goodwill with the customer.

In short, today’s volatile credit environment presents competitive risks and opportunities for community banks. Now is the time to take a fresh look at the landscape and determine how you will take advantage of the opportunities – and minimize the risks. We can help you take advantage of potential new opportunities. Call us today to discuss the possibilities.

Financial Lending Notes 2008:

This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting tax or other professional advice or opinions on specific facts or matters and , accordingly, assume no liability whatsoever in connection with its use. The information in this publication is not intended or written to be used, and cannot be used, by taxpayer for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this publication.