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A Directory of Small Business Lending Reported by Commercial
Banks in June 1996
This report contains research prepared by the Office of Advocacy of the
U.S. Small Business Administration. The opinions and recommendations made
herein do not necessarily reflect official policies or statements of the U.S. Small Business Administration or any agency of the U.S. Government. For
further information, contact the Office of Advocacy, U.S. Small Business
Administration, Mail Code 3112, Washington, DC 20416. Published January 1997.
The complete study is available on the Internet's World Wide Web
at http://www.sba.gov/advo/stats/ or on microfiche from the National
Technical Information Service, Springfield, VA 22161, tel. (703) 605-6000
or 1-800-553-6847.
The Office of Advocacy's goal for this annual effort is twofold: (1) to provide small businesses with an easy-to-use tool for locating the most likely sources of small business loans in their communities, and (2) to stimulate competition among banks for small business customers by comparing bank performance in small business lending.
America's small businesses-some 22 million strong-employ about 53 percent of the private work force, contribute 47 percent of all sales in the country, create two out of every three new jobs, and produce two and one-half times as many innovations per employee as do large firms. Small firms keep our market-based system efficient and successful; they keep the nation competitive in global markets.
And the numbers show that commercial banks are among the largest sources of credit to small business. Commercial banks made $105 billion in small commercial and industrial loans and $67 billion in small commercial mortgage loans for a total of $172 billion in bank credit to small businesses in 1996. Other capital sources include finance companies, with loans to small business estimated at $96 billion; SBA-guaranteed loans (including purchased loans), estimated at $26 billion; and SBA-guaranteed loans in the secondary market, estimated at $12 billion.
Clearly, commercial banks play a vital role in maintaining the health of the small business sector and, in turn, the nation's economy. Changes in the commercial banking world, such as interstate banking and fluctuations in interest rates, will have magnified effects on small businesses compared with large firms, which can tap other capital sources not readily available to small businesses, such as the stock, bond, and commercial paper markets. Continued small business access to commercial bank credit must be assured, and changes in market structures that could adversely affect that access need to be monitored closely.
This latest report, like the 1994 and 1995 editions that preceded it, provides information not otherwise available in the lending marketplace. The response of both the small business and banking communities to the previous reports was a loud and clear signal of the need for such information. And the outstanding coverage given to these studies by national and local media reinforces the Office of Advocacy's efforts to improve the efficiency of the credit market for small business loans.
It is the Office of Advocacy's hope that the 1996 small-business-friendly bank study will continue to focus attention on the importance of commercial banks to the start-up and growth of small business.
A basic rule of economics drives this lending research effort, namely, that information rationalizes markets, making them more competitive. The more competitive a market is, the more efficient the market becomes, providing more and better quality services. Overall, the data in the three reports show that capital markets are not static. Bank rankings shift from year to year. Among the findings of particular interest in the 1996 report are the following:
* Analysis of the 1995 data showed that banks that were small-business-friendly were more profitable than banks that made few small business loans. This insight casts doubt on an operating principle of many banks-that loans to small businesses are less profitable. If bank profitability on such loans continues, improved access to commercial bank credit should be assured.
* The 1995 data also showed that credit extended to small business increased by more than $8.35 billion over 1994. The 1996 data revealed an additional increase of $8.43 billion over 1995. Commercial and industrial loans increased the most, growing by $7 billion over 1995.
Whether the increase is attributable to expanded competition for small business loans, to the overall health of the economy, or to an increase in small business start-ups or growth cannot be determined from these data alone. What we know with certainty is that the increase is good news for small business.
The 1996 edition of Small Business Lending incorporates a number of suggestions for improving the format received from users of the previous reports. We have retained some elements of the earlier studies, deleted others, and added some new informational features. The number of ratios used to determine the rankings of the lenders has been reduced. We believe that these modifications, described in detail in the introductory material of the report, have resulted in a product that is fair to the lenders and invaluable to the small business customer, a product that offers an accurate picture of today's commercial lending to small firms.
The Office of Advocacy extends a sincere "thank you" to those who have taken the time to help us fine-tune this effort-members of the small business and banking communities, the federal banking regulators, congressional House and Senate Banking and Small Business Committees, and many individual users of the previous directories. Your comments and suggestions are valuable and truly welcome.
Jere W. Glover
Chief Counsel for Advocacy
U. S. Small Business Administration
Small business is the keystone of the United States economy. In 1993, some 22 million small businesses employed 53 percent of the private work force and contributed 47 percent of all sales in the country[1]. Research shows that access to credit is vital for small business survival.
One of the most important suppliers of credit to small firms is the commercial banking system: 67 percent of all small businesses that borrow money get that money from commercial banks, while 21 percent seek assistance from finance companies[2].
As firms grow in size, their reliance on the commercial banking system increases. Of the small firms that borrow, the following percentages obtain their financing from commercial banks:
* 60 percent of firms with 0-1 employees,
* 64 percent of the 2-4 employee firms,
* 71 percent of the 10-19 employee firms,
* 87 percent of the 100-499 employee firms.[3]
It is critical to the health and growth of a small business to know which banks are meeting the credit needs of small firms and which banks are investing elsewhere. Such information helps small businesses save precious time and shop efficiently for credit.
For the third straight year, the Office of Advocacy is releasing its analysis of call report data on the lending activity of nearly 10,000 individual commercial banks. The information is organized on a state-by-state basis to enable small business borrowers and depositors to make better decisions about the banking services in their respective states.
The state directory ranks the small business lending performance of every commercial bank in the state, identifying those that are small-business-friendly.
Background and History
In 1991, Congress, recognizing the importance of small business to the U.S. economy, mandated that financial institutions report small business loan information to federal banking authorities as part of their call reports.[4] Beginning in June 1993, federal banking regulators collected information from financial institutions on all commercial loans under $1 million.
In 1994 the Office of Advocacy analyzed the call report information reported by banks in order to help small businesses locate those financial institutions that make small business loans. The first study used the June 1994 call report data and was published in December 1994. The second study analyzed the June 1995 call report data and was published in January 1996. In each of those years, the Office of Advocacy also published related studies, Top Small Business Lenders in the United States and Micro Business Lending in the United States. These accompanying reports will also be published using the 1996 data.
Methodology and Sources
The call reports on which this study is based provide various bank data, including the number and dollar amount of loans outstanding by loan size for business loans of less than $1 million. These data enable researchers to evaluate commercial banks' small business lending activities.
Small banks tend to rank high in different categories than larger banks. For example, smaller banks have a higher percentage of total assets in small business loans, but larger banks lead in the sheer number and value of small loans. For this reason, the study uses four variables to rank the small business lending activities of individual banks: (1) the small business loan-to-asset ratio, (2) the small business loan-to-total-business-loan ratio, (3) the dollar value of small business loans, and (4) the number of small business loans.
A bank's rank in a category is based on its decile ranking. (A decile ranking is a measure of where the individual bank falls in the distribution of banks within a state for any given variable. Decile rankings range from 1 to 10, with 10 meaning the individual bank is in the top 10 percent of all banks in the state, and 1 meaning the bank is in the lowest 10 percent for the given category.) A bank's summary total statistic is the sum of its decile rankings for the four categories.
The 1996 Study Compared with Earlier Studies
Since the publication of its first small business banking study in 1994, the Office of Advocacy has received many ideas and suggestions for improving the study from the banking and small business communities. In response, the 1996 version has been modified slightly to identify more clearly small-business-friendly banks by asset size category and to establish a better rating scheme for a more balanced scoring system between community banks and large financial institutions.
What Is the Same
What Is Different
It should also be noted that for the purposes of this study, a small business loan is defined as a loan of less than $250,000.[5] Also, a "super small" loan (or micro loan) is defined as a loan of less than $100,000.
Limitations of the Study
It is important to note that the call report data tell only a part of the story about lending to small business, namely the financial institution part. (Small businesses certainly have access to other sources of credit, such as family and friends.) Additionally, the user of this study should remember that some lending information may not be reported in call reports, or may not be discernible as small business financing. For example:
Additionally, call reports do not reflect a major factor affecting a bank's small business lending activities-the demand or lack of demand for small business loans. Banks of similar lending capacities may end up with significantly different ranking results because of the demand factor.
Despite these limitations, call report data provide sufficient information to present a fairly accurate picture of lending to small business in the U.S. economy. And they are currently the only source of small business lending information available to the public.
The credit market in 1996 continued to expand in general, as it did in 1995. This occurred despite the fact that the number of commercial banks declined by almost 500, decreasing from 10,149 in 1995 to 9,670 in 1996. This decline was concentrated among small banks. Tables A through E compare some information on small business lending for the years 1994 through 1996.[6] The number of small banks (those with under $100 million in assets) declined from 6,980 in 1995 to 6,465 in 1996 (Table A). Over the period 1994 to 1996, the number of commercial banks declined by 1,036 and the number of small banks declined by 1,094, an indication of the continuing trend toward merger and consolidation in the banking industry.
The disappearance of small banks is especially troubling because, as can be seen in the first few columns of Table E, the percent of assets represented by small business loans and the ratio of small business loans to total business loans declines as the bank's asset size increases. The question of whether the ratio of small business loans to total loans declines systemwide as a result of mergers and acquisitions is an empirical question that the Office of Advocacy hopes to address in future studies.
The total amount of small business loans outstanding as of June 30, 1996, was $172 billion, of which $105 billion was in small commercial and industrial (C&I) loans and $67 billion was in small business real estate loans. Business loans overall totaled $848 billion (Table B). The total amount of small business loans represents 20 percent of all business loans (19 percent of all C&I loans and 22 percent of all commercial real estate loans).
The dollar amount of small business loans increased by $8.4 billion from 1995 to 1996, while the number of loans increased by 461,000 (Tables B and C). Small C&I loans expanded the most in 1996, growing by $7 billion over 1995, a significant increase. Small business real estate loans in 1996, however, increased by only $1 billion.
The number of super small or micro-loans (loans under $100,000) increased, good news for small firms (Table C). Also, the dollar amount increased by 4.87 percent (Table D).
The total share of loans going to small firms (loans of less than $1 million) did not increase through June 1996, after declining in 1995. In 1994, small businesses received 21.3 percent of commercial bank credit. In 1995, that share fell to 20.3 percent. In 1996, the small business share stayed at 20.3 percent. While the dollar amount of loans to small firms is increasing, so is the dollar amount of loans to large businesses.
Small business' fair share of borrowing is a debatable issue. However, their declining share of borrowing troubles many small business advocates and policy makers. If small business is denied access to a sufficient volume of bank credit (if the small business share of lending does not increase proportionately to large business lending), then small businesses may be unduly restricted in their ability to contribute to the growth of the economy.
Table A. Number of Banks by Bank Asset Size, 1994 - 1996
Bank Asset Size ($) 1994 1995 1996
< 100 Million 7,559 6,980 6,465
100-500 Million 2,514 2,521 2,548
500 Million -1 Billio 256 256 260
1-10 Billion 324 326 326
> 10 Billion 53 66 71
Total 10,706 10,149 9,670
Table B. Dollar Amount of Business Loans by Loan Size
Loan Size ($) 1994 1995 1996
< 100 Thousand 97,675 100,374 105,187
100-250 Thousand 57,866 63,517 67,132
250 Thousand - 1 Mill 138,876 152,022 160,723
> 1 Million 434,299 490,078 515,060
Total 728,716 805,991 848,102
Table C. Number of Business Loans by Loan Size
Loan Size ($) 1994 1995 1996
< 100 Thousand 4,496,327 4,885,066 5,313,182
100-250 Thousand 500,149 553,851 587,164
250 Thousand - 1 Mill 413,556 461,454 496,131
> 1 Million NA NA NA
Total NA NA NA
Table D. Percent Changes in the Number and Dollar Amounts of Loans
1994-1995 1995-1996
Loan Size ($) # $ (M) # $ (M)
< 100 Thousand 8.6 2.8 8.8 4.8
100-250 Thousand 10.7 9.8 6 5.7
250 Thousand - 1 Mill 11.6 9.5 7.5 5.7
> 1 Million NA 12.8 NA 5.1
Total NA 10.6 NA 5.2
Table E. Average Data on Small Business Lending by U.S. Banks for 1996 (Average per Bank)
Small Business Small Business
Loans to (a) Loans
Total
Business
Asset Size Assets Loans Value(b) Number
< $100 million 12.3 82.7 5.67 184
$100-$500 million 10.7 52.8 19.74 556
"$500 million-$1 bil 6.7 31.7 45.25 1,230"
"$1-$10 billion 4.4 22.3 118.17 5,137"
"> $10 billion 2.3 15.6 494.35 18,341"
All banks 11.4 70.9 17.82 610
a. Ratio expressed as a percent.
b. In millions of dollars.
The 1996 state directories each contain two tables (which has been combined into one table for presentation on the Internet). Table 1, "Small Business Lending in [State], June 1996," lists all the banks in the state and ranks their small business lending activities. Table 1 differs from previous years' tables in that it uses a four-variable scheme for the ranking of friendly banks rather than five variables, restructures bank asset size classes, and identifies banks with a high ratio of credit card activity.
Table 2, Small-Business-Friendly Lenders by Bank Asset Size (June 1996), lists the top small-business-friendly banks in the state by asset size, and is based on the summary total statistic (found in Column 1 of Table 1), as identified by the Office of Advocacy. Included are banks that are among the top 10 banks or the top 10 percent of banks, whichever number is smaller, and the top banks in each asset size class.[7] It is difficult to say categorically which banks are the best in lending to small business; Table 2 presents the banks that are the most small-business-friendly given the limitations of the call report data.
(For the convenience of the reader, a "Sample Table Entry" page is provided on page 11.)
Column 1, Total. The "total" number found in the first column is the ranking of the bank for the state where it is listed. The number is the aggregate measure of small business lending activity based on the sum of the decile rankings found in columns 2 through 5. The best total score is 40, which indicates that the bank is in the top decile in each of the four variable categories. A total score of 4 indicates that the bank is in the bottom decile in each of the categories.
Column 2, Rank of the Ratio of Small Business Loans to Total Assets of the Bank (SBL/TA). This column measures the ratio of small business loans to total bank assets. A ranking of 10 means that the bank is in the state's top decile of small business loan-to-asset distribution. The bank has an outstanding record in lending to small business; it is willing to risk a larger portion of its assets in small business lending. The average small business loan-to-asset ratio by bank asset size ranged from 2.3 percent to 12.3 percent (Table E).
Column 3, Rank of the Ratio of Small Business Loans to Total Business Loans of the Bank (SBL/TBL). The third column displays the decile ranking for the ratio of small business loans to total business loans. The average small business loan to total business loan ratio by bank asset size ranged from 16 percent to 83 percent (Table E).
Column 4, Total Dollar Amount of Small Business Loans Lent by the Bank (SBL($)). This column shows the decile ranking of a bank's dollar value of small business loans outstanding.
Column 5, Total Number of Small Business Loans Issued by the Bank (SBL(#)). This column displays the bank's decile ranking for the total number of small business loans outstanding.
Information provided in columns 6 through 13, though not figured into the summary total statistic in column 1, offers additional data about an individual bank's small business lending activities.
Column 6, Bank Asset Size Class. Here the asset size class of the bank is defined. The number of banks in each size class is provided in Table 2.
* Under $100 million ( < 100M)
* $100 million to under $500 million (100M-500M)
* $500 million to under $1 billion (500M-1B)
* $1 billion to under $10 billion (1B-10B)
* $10 billion and over (> 10B)
(Note: An additional bank asset size class category has been added to this year's study; therefore it will be difficult to make comparisons with the previous studies.)
Column 7, Rank by Bank Asset Size Class. This column measures how well a bank is doing in its own asset size class relative to the summary ranking found in column 1. Thus, a 1 in this column means that the bank ranks first in its asset size class. A 7 means that it ranks seventh in its asset size class. The number of banks in each asset size class in the state can be found at the end of this report in Table 2. The total includes all commercial banks filing call reports.
Column 8, Dollar Amount of Small Business Loans (SBL($)). This column lists the dollar amount (in thousands) of small business loans for loans of less than $250,000. (Note: For the 1995 report, the loan size used for this column was "under $100,000.")
Column 9, Number of Small Business Loans (SBL(#)). This column lists the number of small business loans made by the bank for loans of less than $250,000. (Note: For the 1995 report, the loan size used was "under $100,000.")
Column 10, Ratio of Super Small Business Loans (Micro-Loans) to Total Assets (SSBL/TA). Displayed here is an additional decile ranking of loan-to-asset ratios: the ratio of super small loans (loans of under $100,000, also called micro-loans) to the bank's assets. This information allows a small business to find a bank that ranks high in the desired loan size category. A firm looking for a loan of $50,000 might be better served by a bank making more loans of under $100,000 than a bank concentrating on loans of $1 million.
Column 11, Ratio of Larger Small Business Loans to Total Assets (LSBL/TA). Displayed here is an additional decile ranking of the ratio of loans under $1 million to the bank's total assets. A firm looking for a larger small loan might want to seek out a bank doing high volume in loans under $1 million.
Column 12, Ratio of Small Business Loans and Farm Loans to Total Assets (SBL&FL/TA). This column is the decile ranking for the ratio of total small business and small agricultural (farm) loans under $250,000 to the bank's total assets.
Column 13, Credit Card Banks. A double asterisk in this column means that the bank has a significant amount of business credit card activity. Many of the loans made by these banks may be credit card accounts to individual employees of large firms or credit card accounts to small firms. Since the call report information does not distinguish these two types of loans, the summary total statistic in column 1 may be biased, making some banks appear more small-business-friendly than they are. However, a few of these credit card banks are making loans to small businesses with credit cards. Thus, the double asterisk is a caution flag.
Column 14, Top SBL. A single asterik in this column means that the bank was a small business friendly bank as identified by the Office of Advocacy on the basis of total ranking by bank size (as was presented in the table "Small-Business-Friendly Banks by Bank Size in the State").
Small businesses seeking loans from small-business-friendly banks should also seek out banks that participate in SBA's loan programs. If a bank participates in the SBA's loan programs and utilizes secondary markets extensively, the bank's ranking in this study may be artificially low.
Put another way, banks participating in SBA's Preferred Lender or Certified Lender Programs should be considered small-business-friendly.[8]
The Office of Advocacy will continue to conduct research using the call report data and will issue a year-to-year comparison of lender rankings using the new criteria introduced in the 1996 report.
Because of market interest in specialized data, the Office of Advocacy published Micro Business Lending in the United States, 1995 Edition. This study rank-orders the top banks in each state in terms of their micro lending (loans of $100,000 and less).
Another report, The Top Small Business Lending Banks in the United States, 1995 Edition, lists the top holding company banks and ranks them according to the dollar amount of small loans issued (that is, loans of less than $250,000). The three top holding company banks in the United States each made small business loans totaling some $3 billion. Updates of these studies will be published using the 1996 data.
Also, research is being conducted on how bank mergers and acquisitions and interstate banking/branching are changing the availability of loans to small business.
The three editions of the Office of Advocacy's lending studies are available on the Internet at:
* http://www.sba.gov/advo/stats/lending/1996/
* http://www.sba.gov/advo/stats/lending/1995/
* http://www.sba.gov/advo/stats/lending/1994/
Paper and microfiche copies of all Advocacy reports are also available for purchase from the National Technical Information Service, tel. (703) 605-6000 or 1-800-553-6847.
Suggestions on how to improve this study are welcome. Dr. Robert E. Berney, the director of this study, may be reached at Washington State University, Department of Economics, tel. (509) 335-5141. Comments and technical questions may also be directed to Dr. Charles Ou, Office of Advocacy, U.S. Small Business Administration, 409 Third Street, S.W., Washington, DC 20416; tel. (202) 205-6966; fax (202) 205-6928.
1/ Small Business Answer Card, 1996, Office of Advocacy, U.S. Small Business Administration.
2/ Rebel A. Cole and John D. Wolken, "Financial Services Used by Small Businesses: Evidence from the 1993 National Survey of Small Business Finances," Federal Reserve Bulletin (July 1995), 629-667. The 1993 National Survey of Small Business Finances was jointly funded by the Federal Reserve Board and the Office of Advocacy.
3/ Ibid., Table A.5
4/ Call reports, officially known as Consolidated Reports of Condition and Income, are quarterly reports filed by financial institutions with their appropriate bank regulator. The call reports provide detailed information on the current status of a financial institution. Section 122 of the Federal Deposit Insurance Corporation Improvement Act of 1991 requires financial institutions to report on an annual basis the number and amount of small business loans.
5/ Loans of less than $250,000 were selected as a measure of small business lending activity in preference to loans of less than $1 million because the size of the borrower generally increases with the size of the loan. Local subsidiaries of large businesses are more likely to borrow $1 million than $250,000. To minimize "white noise" in the loan size data, a loan size was selected that may be small for many small businesses. Most of the borrowers in the $250,000 loan size will be small. In addition, there is an 80-percent correlation between the $250,000 and $1 million loan size series; thus most of the information in one series will be included in the other series.
6/ Note that loan sizes and bank asset sizes are in nominal dollars. Without real dollar figures, comparisons between 1994, 1995, and 1996 dollars require caution
7/ For some large bank classes, a second bank was added when the top bank was found to have considerable credit card activity.
8/ "Preferred" lender status means that the bank has been given the full authority to guarantee SBA loans to qualified business owners without SBA review. Nearly 400 banks are preferred lenders. "Certified" lender status means that an SBA loan official will rely primarily on the bank’s analysis. More than 1,000 banks have this status.
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