It might sound surprising, but even the Average Joe can start a bank without much risk. Smart Money.com reports that new restaurants have a 60 percent rate of failure within the first three years while new banks have only a one in 1,000 chance of failing within that period. The report also claims that $67 billion has been earned by 6,770 community banks since 2005. Here is how money experts recommend starting a bank.
Those interested in this undertaking must first identify the need for a new bank by assessing the number of community banks within the local geographic area. If small banks are being purchase by large conglomerates and few remain locally owned, it may be the prime situation for creation of a new bank. Some consumers appreciate face-to-face dealings with banking executive and receiving immediate decisions.
The amount of capital required to start a bank ranges from $12 to $20 million, so if this money is not present it must be raised. Community businesses provide viable sources for this money and local business leaders usually make positive contributions when sitting on the bank board of directors. Construction, accounting, and law firms within the area may be sitting on extra money and have some great ideas for services that can distinguish a community bank from its competition.
After the necessary capital has been obtained, a community bank application must be submitted to the industry regulatory agencies. Current economic conditions have made it more difficult for banks to get regulatory approval. As a result, the number of community bank applications has decreased since the recession. Once this stage is reached, regulatory approval is the only remaining hurdle preventing a bank from opening its doors.
Some of the advantages of community banking include getting back to the grass roots of the banking concept, making decisions, and impacting the local community. These banks stimulate the local communities they serve by reinvesting money and creating jobs for residents. They offer a way for banking to get back to what it once was in terms of developing face-to-face relationships with local citizens.
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