Office of Advocacy

A Directory of Small Business Lending Reported by Commercial Banks in June 1996

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.

Foreword

The SBA's Office of Advocacy is pleased to release the second, 1996 edition of Micro-Business-Friendly Banks in the United States. This study provides information not otherwise available in the marketplace and helps small businesses identify banks in each state that are "micro-business-friendly" in terms of their lending in amounts under $100,000.

Among the highlights of the study are the following:

• The new ranking system identifies 478 banks that are micro-business-friendly-that is, those with significant business lending activity in amounts of less than $100,000.
• A number of large banks were found to be very active in micro-business lending: 20 banks had at least $100 million in micro-business loans outstanding as of June 1996.
• The dollars in micro-business loans outstanding for the 478 banks totaled $15.8 billion-15 percent of total micro-business lending by all U.S. banks. In comparison, these 478 banks held only 3.3 percent of total bank assets. The growth in their micro-lending also far exceeded overall growth in bank micro-business lending.

The Office of Advocacy has recently published two companion reports, the 1996 edition of Small Business Lending in the United States, and The Bank Holding Company Study, 1996. The first study rank-orders (within each state) all 9,670 U.S. banks in terms of their small business lending. The latter study lists banks that are top-dollar lenders to small business.(In both studies, a small business loan is defined as a loan of less than $250,000.)

Our readers have made many helpful suggestions about the format of this report, and a number of them have been incorporated in this edition to improve its usefulness, while preserving comparability with earlier editions. Thanks to those who have helped fine-tune this effort. Comments and suggestions are always welcome!

For those with access to the Internet, the studies are available at http://www.sba.gov/advo/stats/lending/1996/. Copies of all three reports are also available from the National Technical Information Service, telephone (703) 605-6000 or 1-800-553-6847.

Jere W. Glover

Chief Counsel for Advocacy

U. S. Small Business Administration

Introduction

This report is a companion to the more comprehensive study, the 1996 edition of Small Business Lending in the United States (which has come to be known as the "small-business-friendly banks" study).1 The small business lending study ranks all 9,670 U.S. commercial banks, all of which were required to provide small business lending data in their June 1996 "call reports" to federal banking regulators. Micro-Business-Friendly Banks in the United States, 1996 identifies the micro-business-friendly lenders-banks with significant lending activity in loans of less than $100,000.

Comparison with Earlier Studies

In order to provide a better measurement of commercial bank micro-business lending, a new ranking method was adopted for the 1996 study. The 1995 study used a single criterion-the ratio of micro-business loans (loans under $100,000) to total assets-to measure micro-lending activity. The 1996 study uses four variables-the same as those employed in the more comprehensive small business lending study. The variables are (1) the micro-business loan-to-asset ratio, (2) the micro-business loan-to-total-business-loan ratio, (3) the dollar value of micro-business loans, and (4) the number of micro-business loans.

A bank's rank in a given category is based on its decile ranking-where it falls in the distribution of banks within a state for any given variable. Decile rankings range from 1 to 10: a ranking of 10 means that the bank is in the top 10 percent of all banks in the state; a ranking of 1 means the bank is in the lowest 10 percent in the category. A bank's total rank is the sum of its decile rankings in the four categories; for example, a total value of 40 indicates that the bank is in the top decile in each of the four categories.

Small banks tend to rank high in different categories than larger banks. Usually, smaller banks have a higher percentage of total assets in small business loans and thus rank high in the variables based on ratios, while larger banks lead in the sheer number and value of small loans. The 1996 ranking system should provide a more balanced scoring system for comparing community banks and large financial institutions in each state. Because of the new scoring system, many larger lenders with micro-business loans in excess of $100 million are included in this year's listing.

How Micro-Business-Friendly Banks Are Selected

Micro-business-friendly banks in each state are identified based on their total ranking as indicated in column 1 of the table. This listing includes only the state's top 10 banks or the top 10 percent, whichever number is smaller.2 It is not easy to say categorically which banks are the best in lending to small or micro-businesses; this table presents those that are the most micro-business-friendly given the limitations of the call report data.

A total of 478 banks were identified as micro-business- friendly lenders (MBF) in the United States in 1996. They are distributed as follows:

Overview/Observations

Bank Asset Size	MBF Banks	All Banks
< $100 million	219	6,465
$100-$500 million	231	2,548
$500 million -$1 billion	16	260
$1-$10 billion	10	326
> $10 billion	2	71
Total	478	9,670

Because of the more balanced scoring system, the 1996 study includes several banks with assets over $1 billion. In the 1995 study, of a total of 342 banks on the list, 278 banks were very small (with assets under $100 million) and only three medium-sized banks in the $500 million to $3 billion asset size group made the list.

Micro-business loans outstanding totaled $15.8 billion for the 478 banks included in this report. That amount accounts for 15.0 percent of total micro-business lending in 1996. In comparison, the 478 banks held just 3.3 percent of total commercial bank assets. The growth from 1995 to 1996 in micro-business lending for these 478 banks (26.4 percent) also far exceeded the growth for all banks (4.7 percent) and exceeded asset growth rates for both these banks and all banks (14.9 percent and 5.9 percent, respectively).

Changes in Total Assets and Micro-Business Lending of 478 Micro-Business-Friendly Banks, 1996

	Billions of Dollars		Percent Change,
	1995	1996	1995-1996
478 Micro-Business Friendly Banks:
Total Assets	109.2	125.5	14.9
Micro-Business Loans	12.5	15.8	26.4
All Banks:
Total Assets	3556.7	3766.8	5.9
Micro Business Loans	100.4	105.2	4.7

The dollar amount of micro-business loans from these 478 banks ranged from $4.6 million to $1.1 billion. Several large banks were very active in micro-business lending: 20 had more than $100 million in loans outstanding.

The ratios of micro-loans to total assets for these 478 banks range from 0.001 to 0.579, for an average ratio of 0.210. However, only seven banks had a ratio of below 0.05.3 Most of them were committing a larger share of total assets to micro-business lending. From 1995 to 1996, 314 banks improved their loan-to asset ratio.

The Table: Micro-Business-Friendly Banks in the United States

The table lists micro-business-friendly lenders in each state. Because of different banking structures in each state, as well as inter-state differences in the number of banks, their size distribution, and demand for small business loans, the levels of micro-business lending for these top lenders differs greatly from state to state.

The 1996 edition has similarities to and differences from the 1995 edition, as follows:

What Is the Same

• The ratio of micro-business loans to total assets is retained as one criterion.
• Micro-business loans are still defined as loans of less than $100,000.
• Information on the loan amounts and the number of loans is again provided.
• Data are again provided on a state-by-state basis, a format that is of the most relevance to those relying on local bank markets.

What Is Different

• A four-variable scoring system replaces the single variable used to rate banks in the 1995 study. Banks are ranked in each of the four variables and the sum of their decile rankings determines each bank's overall rank. This change permits a more balanced analysis of the small and micro-business lending performance of large and small banks.
• Bank asset size classes were revised to reflect recent changes in the structure of the banking market.
• Several new columns were added. In addition to the five decile ranking columns, additional information on the ratio of micro-business loans to total business loans, the number of micro-business loans, percent changes in total assets from 1995 to 1996, and bank credit card activity are included.

Explanation of Rankings

Column 1, Total Rank. The total in the first column represents the bank's overall micro-business lending score within the state in which it is listed. The number is the sum of the four decile rankings found in columns 2 through 5. The best possible score is 40, which indicates that the bank is in the top decile-the top 10 percent-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 Micro-Business Loans to Total Bank Assets (SSBL/TA). This column displays the bank's ranking in the state for the ratio of micro-business loans to total bank assets. A ranking of 10 means that the bank is in the top decile of all banks in the state.

Column 3, Rank of the Ratio of Micro-Business Loans to Total Business Loans of the Bank (SSBL/TBL). The third column displays the decile ranking for the ratio of micro-business loans to total business loans.

Column 4, Total Dollar Amount of Micro-Business Loans Lent by the Bank (SSBL($)). This column shows the decile ranking of a bank's dollar value of micro-business loans outstanding.

Column 5, Total Number of Micro-Business Loans Issued by the Bank (SSBL(#)). This column displays the bank's decile ranking for the total number of micro-business loans.

Additional Data Provided in the Table

Columns 6 through 12 provide detailed data about an individual bank's micro-business lending activities. Columns 7 through 10 display the data on which the rankings in columns 2 through 5 are based.

Column 6, Bank Asset Size Class. Here the asset size class of the bank is defined.

• 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)

Column 7, The Ratio of Micro-Business Loans to Total Assets of the Bank (SSBL/TA). This column provides the ratio of micro-business loans to total bank assets.

Column 8, The Ratio of Micro-Business Loans to Total Business Loans of the Bank (SSBL/TBL). This column displays the ratio of micro-business loans to total business loans.

Column 9, Total Dollar Amount of Micro-Business Loans Outstanding (SSBL($)). This column shows, for each bank, the dollar value (in millions of dollars) of micro-business loans outstanding.

Column 10, Total Number of Micro-Business Loans Issued by the Bank (SSBL(#)). This column displays the total number of micro-business loans outstanding.

Column 11, Percent Growth in Total Assets (TA96/95). This indicates the percentage growth of the bank's total assets from 1995 to 1996.

Column 12, 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. Because the call reports do not distinguish between these two types of loans, the summary total statistic in column 1 may be biased, making some banks appear more micro-business-friendly than they are. Thus, the double asterisk is a caution flag.

Bank Lending with Small Business Administration Loan Programs

Small businesses seeking loans from small-business-friendly banks should also seek out banks that participate in the U.S. Small Business Administration's lending programs. If a bank participates in the SBA's loan programs and uses secondary markets extensively, the bank's ranking in this study may be artificially low. Banks participating in the SBA's Preferred or Certified Lender Programs should be considered small-business-friendly.4

Limitations of the Study

It is important to note that the call report data tell only part of the story about lending to small business-namely, the financial institution part.

Call reports do not reflect a major factor affecting a bank's ability to make loans to small businesses: the demand or lack of demand for small business loans. This phenomenon occurs on a regional basis. Banks in one area of a state may have a strong demand for small business loans, which increases their score in comparison with other banks in the state. Banks with a similar capacity to lend may have little or no demand for small business loans, resulting in a lower ranking.

In addition, some lending information may not be reported in the call reports or may not be discernible as small business lending. For example:

• Banks may issue consumer credit cards or other forms of consumer credit to small businesses for business purposes. These may be reported as consumer lines of credit or consumer loans.
• Large banks may make loans to small businesses through their consumer loan divisions, thereby classifying the loans as consumer loans.
• Large banks may send the business person to a subsidiary finance company.
• It is likely that only the non-guaranteed portion of SBA-guaranteed loans sold in the secondary market will be included in the dollar value of small loans reported in the call report.
• Loans to small businesses are often made in the form of a second mortgage on the business owner's home and/or personal lines of credit.
• Multi-state banks' statistics on lending are becoming less meaningful as these banks consolidate their accounting and reporting systems.

Despite these limitations, call report data provide sufficient information to present a fairly accurate picture of lending to small businesses in the U.S. economy. And they are currently the only source of small business lending information available to the public.

Suggestions

Suggestions on how to improve the study are welcome. Comments may be addressed to Dr. Charles Ou, Office of Advocacy, U.S. Small Business Administration, telephone (202) 205-6966.

Written comments may be sent to: Office of Advocacy, U.S. Small Business Administration, Mail Code 3112, 409 Third Street S.W., Washington, DC 20416, or faxed to (202) 205-6928.

Accessing the Study

This study, as well as its companion studies, Small Business Lending in the United States and The Bank Holding Company Study, may be accessed via the Office of Advocacy's site on the Internet's World Wide Web at http://www.sba.gov/advo/stats/.

The studies are also available for purchase on paper or microfiche from the National Technical Information Service, 5285 Port Royal Road, Springfield, VA 22161, telephone (703) 605-6000 or 1-800-553-6847.

End Notes

1 U.S. Small Business Administration, Office of Advocacy, Small Business Lending in the United States, 1997 ed., report no. PB97-141410 (Springfield, Va.: National Technical Information Service, 1997).

2 All banks with tied scores are included.

3 In the 1995 edition, only banks with a ratio of 0.25 or greater were considered micro-business friendly.

4 "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. To locate the nearest SBA Preferred or Certified lender, call the Small Business Answer Desk at 1-800-827-5722 or consult the SBA's home page at http://www.sba.gov.