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hen I started my first small business, I was fortunate to have experienced entrepreneurs advise me. One of them guided me through setting up my "back office," teaching me that before I made a single dollar, I should open a business checking account.

So, I proudly walked into my local Bank of America branch—where I already had a personal account—feeling like I was taking my first real step toward the American dream.

That dream quickly turned into a bureaucratic nightmare. I spent two and a half hours signing stacks of documents, overwhelmed by legal jargon, fine print, and mounting pressure to just sign so I could move on with my day. In that windowless, fluorescent-lit room, I felt interrogated. They demanded to know what my balance would be before I even had a paying client. I walked out with a checking account—but also feeling emotionally drained. I chalked it up to a rite of passage in American entrepreneurship. But in hindsight, I wish I had known better.

Small businesses are often hailed as the backbone of the economy, and as consumers, we go out of our way to support them. Yet, when it comes to banking, these businesses face significant disadvantages. With complex fee structures and lending practices that favor larger enterprises, big banks create roadblocks for small business owners. And it’s not by accident—it’s by design.

Big Banks Are Required to Take Your Business—But They Don’t Want It

To understand why big banks treat small businesses the way they do, we need to go back to the 1970s. The Community Reinvestment Act (CRA) of 1977 requires big banks to "meet the credit needs of the communities they serve." This includes allocating a portion of their loan investments to small businesses.

On the surface, this sounds promising. But let’s look closer. When you picture a small business, what do you see? Maybe it’s your neighborhood coffee shop, a local design studio, or a family-owned plumbing company. According to big banks, those are small businesses—but so are a used car dealership with $30 million in annual revenue and a publishing company with 1,000 employees. Here’s why.

The regulatory agencies overseeing big banks’ lending activity—along with the banks themselves—define a "small business" using two separate criteria:

• A business with gross annual revenues of $1 million or less
• A business requesting an original loan amount of $1 million or less

However, these criteria are not applied together, creating a significant compliance loophole.

Under this definition, banks can report loans of $1 million or less as "small business" lending, even when made to businesses with revenues exceeding $1 million. This means that loans to larger, more established businesses can count toward a bank’s CRA obligations, even though they are not the small businesses the law was originally designed to support.

While these regulations appear to ensure small businesses receive fair access to financial services, in practice, they create a system where big banks meet their obligations on paper while prioritizing larger, more profitable clients. If banking regulators do not perform adequate evaluations of a financial institution's CRA program, it allows businesses that aren’t truly "small" to qualify under these rules. Therefore, banks can fulfill compliance requirements without actually supporting the small businesses that need them most.

This loophole sets the stage for a larger issue: while big banks are required to offer small business services, they make the experience so cumbersome that many entrepreneurs are driven away entirely.

Friction by Design: How Big Banks Push Small Businesses Away

Small businesses aren’t as profitable as large clients, so big banks impose unnecessary friction to discourage them.

High Fees

One of the biggest pain points for small businesses banking with big institutions is the prevalence of high fees. Many large banks impose monthly maintenance fees, transaction fees, and penalties that can quickly add up. Some business checking accounts charge as much as $75 per month, regardless of whether the account holds $100,000 or $1 million.

For small businesses with tight margins, these fees create a financial strain that larger corporations can easily absorb. Even if you’re diligent about managing your cash flow, hidden charges often make big banks an expensive choice.

Preference for Larger Clients

Big banks prioritize relationships with larger businesses because they’re more lucrative. In 1995, "small business loans" made up ~50% of business loan balances. By 2015, that number had declined to just 23%. The downward trend continues because big banks prefer making fewer, larger loans—rather than many small ones—to maximize efficiency and minimize risk.

Imagine being a landlord. Would you rather rent out ten units for $1,000 each or one unit for $10,000? Banks think the same way. Fewer clients with bigger loans mean less paperwork, lower administrative costs, and more predictable repayments.

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Overcomplicated Services

Big banks offer sophisticated treasury services designed for large corporations—think cash flow management, complex investment products, and financial risk strategies. While useful for big businesses, these services are often unnecessary and too expensive for small business owners. Instead of tailored solutions, small businesses are left navigating systems that don’t fit their needs.

Despite these challenges, many small business owners continue to bank with big institutions. If you already have a personal account with a big bank, opening a business account at the same institution feels like the logical step. Some business owners also see banking with a major institution as a sign of legitimacy, with status symbols like metal cards or private airport lounges. And of course, there’s the outdated assumption that a larger bank is inherently safer.

Big banks may offer prestige, familiarity, and the illusion of security, but for small businesses and the self-employed, they create more obstacles than opportunities. Hidden fees, impersonal service, and a system designed to favor larger clients make it clear: small businesses are not a priority. If big banks don’t actually want small business customers, why do so many small business owners still choose them? Maybe it's habit. Maybe it’s a perceived lack of better options. Or maybe: it’s time to rethink what a bank should be—and who it should serve.