Entrepreneurs have suffered through tough times during the Covid-19 pandemic and now many are struggling to survive by adeptly managing cash flow and inventory while shoring up working capital. But even as banking profits rise by double digits, some big banks are raising fees and minimum balance requirements on millions of small businesses, and tightening credit lines.

Some small business owners are outraged, more so as the moves come at a time when many are feeling the pinch of rising inflation on goods and services.

Chris Johansen, president of Johansen Enterprises Inc., a furniture wholesaler with $1 million in annual revenue in Joliet, Illinois, is among the small business owners feeling the squeeze from his bank. He got a letter in September from his bank, JPMorgan Chase, informing him of a big increase in fees and minimum balance requirements on his checking account.

He is so angry he called the bank’s chairman and CEO Jamie Dimon to complain. He didn’t get through. “It’s terrible how small business clients are being treated. I am thinking of closing all my accounts and shifting to a credit union,” says Johansen. “The banks are flush with cash and are supposed to be catering to small business owners during this pandemic. Instead, they are looking to just make more money.”

He now needs to have a minimum of $2,000 daily balance in his Chase Business Complete Checking Account or face a $15 monthly fee. The service fee also can be waived if he maintains: a linked Chase Private Client Checking account; a minimum of $2,000 in the account monthly; spends $2,000 monthly on his Chase Ink business card, or deposits $2,000 into his account from the QuickAccept mobile app or other eligible Chase Merchant Service products.

There are also monthly transaction fees on deposits and withdrawals over 20 made with a teller or paper check written on the account of 40 cents each.

A spokeswoman for Chase Bank (a part of JPMorgan Chase) said via email that the company had migrated small business customers to a new kind of account with better functionality, including to receive payments from their customers. The new accounts offer small businesses a number of ways to waive fees. “More than half of customers  already waive their fee and will see no impact,” the company said in an emailed statement.

It’s Not Just Fees

“Larger national and regional banks are not only raising fees, but they are also tightening their credit and underwriting criteria for small business,” according to Travis Miskowitz, director of CFO advisory services at Wiss & Co., an accounting firm in Florham Park, N.J. that services SMBs. “Many of our small business clients are having difficulty getting their lines of credit renewed. Lenders are taking a closer look at company financials and in some cases reducing their lines of credit.”

C2FO, a working capital marketplace, reports that the cost of working capital finance for SMBs has also increased in the U.S. by more than 30% since 2019.  It surveyed over 2,000 small and medium-sized businesses last December and January to assess the trend and noted that as the number of community banks has declined their large bank competitors remain focused on the top end of the market. Between 1994 and 2019 the number of community banks declined from 10,329 to 4,750, according to the FDIC.

Shifting Momentum

The pandemic may have shifted some momentum toward small and community banks, which have been in long decline as banking regulations have favored big financial institutions.

The shrinking community bank marketplace has the Federal Reserve Bank worried, considering these institutions provide more loans to traditionally underserved communities and diverse customers. Despite their shrinking numbers they provided 4.7 million PPP loans totaling $429 billion, or nearly 60% of the program’s total loan amount.

“Small businesses turned to community banks when they couldn’t get the help they needed from large institutions and found community bankers understood their priorities better—and the local marketplace,” said Jill Castilla, president and CEO of Citizens Bank of Edmond in Oklahoma, Citizens Bank of Edmond is opening 100 new small business accounts per week. Pre-pandemic, that was the number per quarter.

“Larger banks have always been a bit difficult for small businesses to work with and as they get bigger many are focusing on wooing corporate customers,” says Michael Eckstein, a CPA and owner of Eckstein Advisory in Huntington, N.Y., a firm that works primarily with businesses that have under $3 million in annual revenue.

New technological solutions may be eating into big bank territory. “Small businesses are also turning to online banks and other alternative solutions,” notes Rohit Arora, president and CEO of Biz2Credit, an online banking site serving nearly 200,000 small businesses annually.

The trend has entrepreneurs like Isla Sibanda, a cybersecurity consultant for PrivacyAustralia based in Briarwood, N.Y. shopping around for non-traditional services that can help her avoid unnecessary fees and long delays. “This is the first time in over a decade that banks have so drastically increased fees and minimum balances without giving any clear reason to customers,” she notes.

She already uses Apple Pay but it now delving deeper into online banking options from such providers as Current, a mobile banking app attached to a Visa card with no minimum balance, ATM or overdraft fees. “This could help streamline financing and ease payments,” she says.

Big Banks Still Dominate

Yet, big banks still dominate the small business market, often via their consumer relationship with small business owners. Banks with $10B in assets hold  a 49% market share of the small business market. The nation’s four largest banks have been growing fast – JPMorgan Chase, Bank of America, Wells Fargo and Citi also control nearly half of all total banking deposits.

Overall profits at those huge finance institutions grew by double-digits year-over-year. Results were driven by a healthier economy that has allowed them to have fewer bad loans. They have also gotten a big boost from trading and investment banking revenue. Bank of America’s net income rose 58% to $7.7 billion year-over-year, while Wells Fargo posted earnings of $5.1 billion, a 59% jump in profits. Citigroup reported $4.6 billion in profits, a 48% increase from Q3 in 2020. JPMorgan Chase profits increased 24% to $11.69 billion.

While small business owners might feel connected to big banks that hold their personal accounts, the financial institutions aren’t necessarily emotionally connected to small business’ pandemic struggles. In fact, they busy retooling for new competition from technology companies.

“A push for high fees to generate more income comes at a time when loan demand has become more tepid and big banks are investing massive amounts in new technology to digitize operations,” says Arora. “They are retooling while net income margins have been crushed by low interest rates.”

Bank analysts say concerns about inflation, the supply chain and economic uncertainty in the months ahead are some of the factors triggering banks to look at ways to boost revenues in their lending divisions and one key area is increasing fees. Although these financial institutions have record levels of liquidity overall, net interest margins have plummeted to a new low, according to the Federal Deposit Insurance Corp. In other words, low interest rates are depressing banks’ lending profits – though loss ratios are down, and in other areas, they are raking in profits.

Few Real Watchdogs

There is little information on the fees or the overall relationships between the finance giants and their small business customers. But on the consumer side, fees are skyrocketing. Bankrate surveyed 10 banks and thrifts in each of the 25 large U.S. markets last month to get a snapshot on minimum balance requirements on checking accounts. The study also examined bank fees. It found that the average balance required on interest-bearing checking accounts to avoid monthly service fees skyrocketed 31% to $9,986.81 versus $7,550.42 in 2020. The average monthly service fee for such accounts increased 5.5% to $16.35. On non-interest checking accounts it rose 1% to 48% — the highest since 2010.

Small business owners now need to re-examine their banking relationships and shop around for providers that offer the best products and services at the lowest cost. Kelsey Sheehy, a small business specialist at NerdWallet, says “there are a host of options to choose from at online banks and traditional banks that go a step above to help small business.”

As she explains, the universe of choices is large, and there are still many options for small businesses, especially those willing to put in the work to find them. They range from online banks and neobanks with FDIC backing, to traditional banks that are offering free checking accounts, no minimum balance requirements and unlimited free transactions.

NerdWallet’s list of 14 Best Free Business Checking Accounts is one place to start. However, small businesses should do their own research at local, small and community banks in addition to what they see on the site. NerdWallet works with many big banks and software companies, which pay to become partners. “This may influence which products we review and write about (and where those products appear on the site) but in no way affects our recommendations or advice, which are grounded in thousands of hours of research,” according to the NerdWallet site.

Keep in mind that credit unions have gotten high marks for supporting Main Street during the Covid-19 pandemic. About 87% of small businesses that applied for a loan, line of credit or cash advance in 2020 with a credit union reported being satisfied, according to a Federal Reserve small-business credit survey.

As Sheehy points out, “in this uncertain world this is one area business owners have control over.

This story was adjusted after publication to clarify Chase Bank’s response.