There are signs that small banks may even be making a comeback. In 1997, for example, about 600 new banks opened nationwide. The study also found that by the third year of their existence, three-fourths of all these new, small banks are solidly profitable. If they put their minds to it, the small banks can run circles around the big ones. Here's an example of that.
Small businesses are the bread and butter of small banks.
That's not surprising. They know their borrowers better. And as studies have shown, when it comes to repaying business loans, the best indicator is not the balance sheet of that business but the history of repayment of loans by its owner in the past. The cost structure of big banks simply makes it impossible for them to be as close to small business owners. They substitute that hands-on approach by using computerized scoring for loans.