Over the past 20 years running small businesses I’ve noticed that getting a bank loan has got harder and harder. Frankly, it’s even harder to find bank accounts from local banks that work. Consolidation is a natural trend in any industry, but for every community bank that gets gobbled up, it makes it harder for American small business owners.
The reason is that smaller banks put more of their assets into small-business loans. That does not mean every community bank is better or every merger is harmful. It means the mix of lenders in a town can affect which owners get a fair hearing.
For a business with uneven cash flow, unusual collateral, or a short track record, that can be the difference between a useful conversation and a quick no.
Community banks and small business lending
The Federal Reserve found a clear pattern in 2021 bank data: smaller banking organizations held a larger share of their assets in small-business loans. The Fed counted business loans of $1 million or less, a common proxy that can also include loans to larger firms.
| Bank Assets | Small-Business Loans as Share of Assets |
|---|---|
| $250M or less | 13.6% |
| $250M to $1B | 13.4% |
| $1B to $10B | 10.6% |
| More than $10B | 6.1% |
Source: Federal Reserve, Availability of Credit to Small Businesses, Table 10
A large bank can still make more small-business loans in total because it has far more assets. This table shows the share of each group’s assets devoted to those loans, not the total dollars lent or the odds that any one application will be approved.
Why a banking relationship can help
A local lender may know an owner, the customers, the equipment, and the market. That knowledge can help when a business looks weak on paper for a reason that a credit score cannot explain.
Imagine a machine shop whose profits fell last year because it bought equipment for a new contract. A lender still needs to test whether the business can repay a loan. But a banker who understands the contract may ask better questions than a standard form does.
The Federal Reserve explains why knowledge of local markets can matter in smaller, relationship-dependent loans in its small-business credit report.
Relationships do not guarantee an approval, a low rate, or sound credit judgment. They give an owner another way to make the case.
America has far fewer banks
The number of U.S. bank charters fell from about 8,500 at the start of 2008 to about 4,500 in 2025, according to the FDIC. Only 86 new banks formed from the start of 2010 through 2024, fewer than six per year on average.
The FDIC says the long decline reflects a sharp drop in new bank formation as well as charter closings. See its 2025 discussion of new bank formation.
Fewer charters do not tell us exactly how many lenders compete in any one town. A branch can remain after a merger, and another local bank can take on customers. But when few new banks open, communities have fewer chances to replace an independent lender.
What happens when a local bank disappears
A merger does not automatically shut off small-business credit. The buyer may keep the local lending team. Another bank may step in. A larger institution may offer faster applications, broader services, or a better price.
The risk is greatest when an owner loses one of the few lenders willing to study a deal that does not fit a standard model. For that owner, a nearby branch is useful only if someone there can still make or shape the credit decision.
The useful question for a community is specific: after the merger, who will review the next restaurant expansion, farm purchase, or shop equipment loan? A bank sign alone cannot answer it.
How owners can use more lender choice
If one bank says no, ask what drove the decision. Was it weak cash flow, limited collateral, a short operating history, or a loan size the bank does not serve? That answer helps you approach the next lender with the right documents.
Talk with a community bank, a regional lender, and a national lender when the loan is large enough to justify the time. Their terms and credit standards may differ. Compare the full cost, repayment schedule, collateral, guarantees, and how quickly you need the money.
Match the product to the need, too. A term loan and line of credit solve different cash-flow problems, even if the same bank offers both.
The takeaway
Small banks make small-business credit a larger part of their business, and local knowledge can help them judge unusual borrowers. Large banks bring scale and useful products. Owners benefit when both kinds of lender have room to compete.
A good business should have more than one place to make its case.