Meaning of Community Bank
A community bank refers to financial institution operating and serving the needs of local community in a small geographical area. They are basically depositary and lending institutions that provides their services to businesses and individuals in nearby locality only. Unlike the large commercial banks, community banks do not have large number of branches in distinct cities serving a large number of customers. These banks are focused on their local customers and even tends to emphasize better level of understanding and relationship with them. Community bank can also be termed as locally owned and operated financial institution as funds deposited here comes from local community and then same funds are lend to borrowers from same community itself. This means that peoples in neighbourhood carries full control over who will receive capital from bank and how capital will be utilized.
Community banks for making the lending decision do not rely on income, credit scores and other quantitative data of borrower like larger banks mostly used to do. They give more importance to relationship and family histories of peoples while lending them funds. These local banks serve as better safeguard for its people’s fund as they use the customer deposits for funding loan to community individuals or productive investment. They don’t try to gamble with the depositor’s fund as big banks do solely for making higher profits. Large banking institutions usually utilize the deposits for making a speculative investment that oftenly puts people money and entire financial system at risk if, in case anything goes wrong.
Pros of Community Banks
Some of the advantages of community banks are well-explained in points given below: –
Offers better interest rates and lower fees
Community banks offers better rate of interest and charges lower fees from their customers. These banks do not adopt aggressive fees charging strategies for growing their profit as most of the big banking corporations does. Community bank provide directs benefits to all its account holders in community by keeping their more and more money safely and not using it unfairly for their growth. All financial products offered by community bank carries higher interest rate in comparison to big national banks and this results in more savings to individuals.
Large focus on serving local business
Small businesses are up to large extend dependent upon large banking institutions for getting required capital and lay a foundation of their success. But big banks before taking the lending decisions takes into consideration the credit score and distinct quantitative information due to which many small firms are unable to get loan approval. Community banks provide numerous benefits to small and local business, ranging from speed and quality of loan approving process to any kind of assistance needed such as professional advice for helping business become success. These banks clearly understand about direct benefit of prosperous and growing small business has on their own business. As, community banks are smaller in size and do investments in local areas, they perform more as partner with small businesses and help them to grow unlike lenders who just show up to collect monthly payments.
Timely decision making
The community banks provide quick decision-making with regard to approval of business loan because all decisions are made locally. They don’t involve distinct application formalities thereby consuming more time. Whereas, megabanks need to convene loan-approval committees before approving loans that are located in another states, quite far from their customers. This quick decision-making process of community bank adds more convenience to individuals looking to borrow funds.
Community engagement and accessibility
Community bank officers are more actively involved and engaged in their local communities where they carry out their business activities. They are like small local businesses serving their nearby people and thrive only when their customers as well as communities flourish. Mega bank officers, on other hand, are even not engaged in communities where their branch offices are located. Also, the majority of decisions taken by community banks are based on needs of community or what will best serve their clients. These banks work towards the growth of local communities via channelizing most of the loans to neighborhood where their accountholders live and work.
Offers personalized service
They offer personalized services and are more customer-facing than other private banks operating in market. Community bankers largely pay attention on the needs of local individuals, families, farmer and businesses. As they are closely connected with people locally surrounding them, community banks hold good relationships with their customers that ultimately helps in offering a more personalized experience.
Cons of Community Banks
The limitations of community banks are as follows: –
The biggest limitation with community bank is their limited reach by customers as they have small number of branches. If you have account with community bank and you are big on travelling, then you will not find your regional bank branch outside of your state. You will also not have access to ATM’s and internet banking services 24 hours a day and seven days a week unlike other big banks.
Community banks have limited funds as compared to other commercial banks for lending loans. They can’t offer loans of millions of dollars for big organization and construction projects. Due to their lending restrictions, community banks can only cater to the needs of small businesses.
Limited range of financial services
Community banks offer limited range of financial services unlike the commercial banks that offer an extensive range of products and services. Customers who are looking for insurance services and investment services will be at many times need to turn away at community bank.
Large Bank vs Community Bank
Most of the national banks offers a global or national network of branches and ATM services to their customers. People even get 24 hours banking services no matter where they go. Small community banks on the other hand, does not have same level of availability or services and are limited to particular regions.
Better digital technology
Big banks have robust digital technology through which they provide banking mobile app features and other digital banking services to their customers. However, the local community banks may not offer such experience to their range of customers due to their limited resources.
More extensive range of product and services
There are wide range of product and services offered by large commercial banks such as investment accounts, foreign currency exchange or specialized business banking solutions. But depending upon the customer needs, a community bank may not provide complete range of financial services that they want.