How the Decline in Community Banks Has Hurt U.S. Entrepreneurship

When I started my business in the late 1960s, it never occurred to me that, even at age 18, I couldn’t be an entrepreneur. Even very early in my career, bankers—that is, real people greeting me at a brick-and-mortar location—took the time to help me and lend me capital after spending time with me and trusting my business plans. But today, despite the fact that entrepreneurship is more popular and praised than ever, according to the Kauffman Foundation, the number of new start-ups in the United States is approximately half of what it was 30 years ago. According to the World Bank, the U.S. currently ranks 53rd in terms of ease of starting a new business.

Of the many factors that have contributed to today’s challenging startup environment, perhaps the most surprising in the wealthiest country in the world is a lack of access to capital.

While venture-backed startups get a lot of media attention, less than 1% of startups receive venture capital funding. VC funding is also highly concentrated in certain cities (think San Francisco and New York) and certain industries (like tech). That leaves 99% of startups to rely on other capital sources.

For generations, community banks have served this purpose, engaging in relationship-lending to support local entrepreneurs who may not always look the best on paper, but who have solid business plans that can make a difference in the community. Community banks provide almost 50 percent of all small business loans, according to the Small Business Administration (SBA).

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