Small banks might be better than big ones for entrepreneurs looking for business formation loans

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Recently, the administration announced that it will provide more than $30 billion to banking institutions to offer loans to small businesses nationwide. This includes an increase in allocations for microloans specifically for entrepreneurs undergoing business formation.

The Huffington Post predicts that the majority of these loans will be made to SMBs from community banks. Finance experts at the source have a few theories on why startups may have better results if they apply for loans from small banks.

To start, they say big banks rely on computer models when making decisions about where to make loans. This approach allows little room to understand the nuances of a particular startup business.

Small banks, on the other hand, tend to meet with entrepreneurs one on one. This allows them to better assess the risks and gains of a wide variety of business types, and it often increases the chances that a startup company will receive a loan.

Additionally, many small banks want to see businesses within their community succeed. Entrepreneur Andrew Atwood described trying to get a loan from a big bank as a nightmare, but when he turned to a small, locally owned bank he not only got his loan but at a better interest rate. “From the get-go they treated us like your next door neighbor,” he told the source.

Entrepreneurs who want to incorporate a business may take this information into consideration when deciding where to apply for loans.