As a member of your community’s Chamber of Commerce you have seen first-hand the difficulty many of the local merchants have had securing business loans which they need to purchase inventory for the next quarter. Prior to the economic recession, the large banks were very willing to make such loans, even to the least financially secure individuals. Now, securing a loan is a challenge even for the most reputable and successful businesses. You and several other members of the Chamber have made the decision to start a community bank that will be supportive of the local merchants’ financial needs. You soon learn that starting a bank is not quite as simple as opening a hardware store or insurance agency. In an essay of approximately 225 words, create a plan for moving your concept for a community bank from a great idea to execution. Create a sequential list of the five key steps you must complete and what you must do to demonstrate that you have met the legal, financial and regulatory requirements associated with that step in the process.

When you hear the words “small business lender”, you may imagine a calculator-clutching community banker who spends his time carefully scrutinizing entrepreneur’s financial statements. But increasingly these days that’s anachronistic. Banks have moved from being community-focused to being Fed-focused, and small business lending is less of a priority. That’s why if you talk to any small business owner about the biggest obstacles to their growth, it won’t take long for the conversation to turn to capital access.

In fact, about 80 percent of small business owners who apply for a bank loan get rejected. That’s a staggering number, and it’s easy to think that this is just a ripple effect of the financial crisis of 2008. After all, banks almost by definition tighten the credit spigot during a banking crisis, and there’s no question that the crash is partly responsible for the 20 percent decline in small-business lending from the pre-crisis boom. Moreover, terms on small business loans tightened during the crisis, and have loosened much less for small firms than for large firms during the recovery.

But, that’s not the whole story. The truth is that over the past two decades, small business loans have fallen from about half to under 30 percent of total bank loans. That secular decline is due to a multitude of factors, including high transaction costs of small business loans and regulators that push banks to hold more capital against business loans than consumer loans, further driving up the costs of small-business lending.

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