Directory of Small
Business Lending Reported by Commercial Banks in the United
States in June 1994
This report contains research prepared by the U.S. Small Business
Administration's Office of Advocacy. The opinions and recommendations
made herein do not necessarily reflect official policies 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, 409 Third
Street S.W., Washington, DC 20416. Published December 1994.
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Foreword
The importance of small business to our national economy cannot
be overstated. America's small businesses "some 21 million
strong" employ about 54 percent of the private work force,
contribute 52 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 our nation competitive in global markets.
Commercial banks are the primary generators of credit to small
business and, thus, play a vital role in maintaining the health
of the small business sector and the nation's economy. Statistics
show that some 60 percent of measurable small business financing
comes from commercial banks:
Bank credit:
Commercial and industrial loans 36%
Commercial mortgages 25%
Total bank credit 61%
Nonbank credit:
Venture capital 10%
Finance companies 23%
SBA loans 6%
Total nonbank credit 39%
(Data on consumer loans used to finance small business, and
on trade credit available to small firms, are, unfortunately,
not available.)
The impact of credit tightening and rising interest rates,
therefore, affects small firms more than large firms, which
also have access to the stock, bond and commercial paper markets.
It is because of the importance of commercial banks to small
businesses' survival and growth that the Office of Advocacy
has undertaken this study on the lending behavior of the nation's
commercial banks. The findings, to be released on a state-by-state
basis, are meant to help depositors and borrowers see a clearer
picture of small business lenders in their state. A goal of
the project is increased competition among lenders for that
valued customer" the American small business.
Jere W. Glover
Chief Counsel for Advocacy
U.S. Small Business Administration
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Introduction
We may never know why some commercial banks are more "small-business-friendly"
than others. For now we have to be satisfied with simply recognizing
which ones are making small loans.
Congress mandated that information be collected by loan size
for loans under $1 million as part of a lending institution's
call report1 to federal banking authorities. Call report data
are available to the public. An analysis of various small
loan data "the number and dollar value of small business loans
outstanding, the dollar value of small business loans relative
to a bank's total assets, the dollar value of small business
loans relative to total deposits, and several other lending
ratios and measures" allows a ranking of commercial banks'
small business lending activities for every state.
It must be stated that call reports are not a perfect data
base for reflecting a bank's support for small business. For
example, call reports do not contain separate information
on SBA-guaranteed lending activity banks that are very active
SBA lenders but use the secondary market will not have the
benefit of that statistic in this report. (Hopefully, future
studies will provide specific information on SBA lending activities.)
Also, some banks may be making small business loans through
credit cards, second mortgages, or other forms of consumer
credit. These banks, too, may not rank high in the listings.
And call reports do not reflect demand conditions: a bank
may want to be a small-business-friendly supplier but a low
demand will affect the final ranking of the bank. (A bank
without branches may limit the geographic area of it lending
activities to only one community or part of the state. This
appears to be the case for many top-rated banks.)
Thus, it is difficult to say which banks are "best" in lending
to small business. What can be said is which banks are "best"
according to information presented in the call reports as
analyzed in this directory.
The goal of this project is to provide information for users
of banking services to help them make better informed market
decisions. Entrepreneurs will see which banks in their communities
make small loans; depositors will be able to determine if
their banks provide small loans to businesses.
Moreover, if banks recognize that their investment behavior
is being monitored by advocates of small business, their lending
attitudes may change and competition may improve. Small businesses
may find greater access to traditional business loans, and
credit availability may be greater overall for the nation's
small businesses.
Attached is a table listing all the banks in your state and
their lending activities to small business. (For the purposes
of this study, a small business loan is defined as a loan
of less than $250,000.) The data used in developing the table
come from the June 1994 call reports that were filled out
by all federally insured commercial banks and submitted to
the federal regulatory banking authorities.*2
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Explanation of the Data
In this study, the overall performance of each commercial
bank is based on the sum of five variables:
- the dollar value of small business loans relative to total
bank assets;
- the dollar value of small business loans relative to total
business loans;
- the dollar value of small business loans relative to total
deposits;
- the dollar value of small business loans; and
- the total number of small business loans.
An explanation of the data in our study follows. Readers may
find it beneficial to refer to the accompanying sample table
entry on page 7.
Column 1. The summary statistic found in the first column
is an aggregate measure of small business lending activity,
the sum of the decile rankings found in columns 2 through
6. (A decile ranking is a measure of where the individual
bank falls in the distribution of the statistic defined by
the column. Decile rankings range from 1 to 10, with 10 meaning
the individual bank is in the top 10 percent of all banks
within the state.) A summary statistic value of 50 indicates
that the bank is in the top decile in each of the five categories.
A value of 5 indicates that the bank is in the bottom decile
in each of the categories.
Column 2. This column measures the ratio of small business
loans to total bank assets. A ranking of 10 means that the
bank is in the top decile of the state 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. If the number is a 2, it means the bank
falls in the next to the lowest decile for this variableþthat
is, among the lowest 20 percent of all banks in the state.
The conclusion to be drawn is that this bank has not committed
much of its capital in making small loans.
The highest loan-to-asset ratio by any bank in 1994 is approximately
70 percent, clearly an outstanding record in supporting smaller
firms. At the opposite end of the distribution, 5 percent
of the banks have loan-to-asset ratios of less than 1 percent
"indicating that they make almost no recorded loans to small
business." (Analysis of 1993 call report data revealed that
there were 189 banks with zero loan-to-asset ratios. The implication
is that these banks were not making any small business loans.)
Column 3. The third column measures the decile ranking of
the ratio of small business loans to total business loans.
The sample table entry "9" means this bank falls within the
second highest decile. Between 80 and 90 percent of the bank's
lending is in small loans.
Column 4. This column gives the decile ranking of the ratio
of small business loans to bank deposits. If the number is
close to 10, it means that the bank's deposits are being reinvested
in the community's small firms. Technically, there is no geographical
data on the borrower but most researchers accept that if the
loan is small, it is more likely to be invested locally.
Column 5. This column shows the decile distribution of a bank's
dollar value of small business loans outstanding.
Column 6. This column measures the bank's decile distribution
of total number of small business loans.
To repeat, the summary statistic is the sum of the decile
rankings found in columns 2 through 6. A summary statistic
value of 50 indicates that the bank ranks in the top 10 percent
in all categories of small business lending (where small business
lending is defined to be all commercial, industrial, and commercial
real estate loans of less than $250,000). A value of 5 indicates
the bank ranks in the bottom 10 percent in all categories.
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Additional Information
Information provided in columns 7 through 12, though not figured
into the summary statistic, offers more about an individual
bank's small business lending attitude or activities.
Column 7. This column measures how well a bank is doing in
its own asset size class in the dollar value of small loans.
On the sample table entry, look at the number in column 7
and at the asset size class presented in column 8. Compare
the number in column 7 with the number in the appropriate
asset size group in the block of information called "Number
of Banks in Each Asset Size Group." If the number in column
7 is 127, and the total number of banks in its asset size
class is 127, this bank leads all other banks in its size
class in the dollar value of small business loans. If the
number in column 7 is 120, the bank ranks seventh behind the
top bank.
Column 8. Here the asset size class of the bank is defined.
The classes are:
- Under $100 million
- $100 million to under $300 million
- $300 million to under $500 million
- $500 million to under $3 billion
- $3 billion and over
Column 9. Presented here is a ratio showing how a bank compares
to the state average for the small business loan-to asset
ratio. If the number is greater than 1, the bank's small business
loan- to-asset ratio is greater than the state's average.
Columns 10 and 11. Displayed here are two additional decile
rankings of loan-to-asset ratios: the value of loans less
than $100,000 and the value of loans less than $1 million.
These two loan-to-asset ratios are correlated with the loan-to-asset
ratio in column 2; therefore the results are not dependent
upon the assumption that small business lending is less than
$250,000. For example, a preliminary regression using the
1994 data shows an 80-percent correlation between the less-than-$250,000
loan size and the less-than-$1 million loan size.
This information allows a small business to find a bank that
ranks high in the size of loan category for which it is looking.
A firm looking for a $50,000 loan might be better served by
banks making more loans under $100,000 than a bank concentrating
on $1 million loans.
Column 12. This column is the decile ranking for the ratio
of total small business and small agricultural loans to the
bank's total assets.
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Limitations of the Study
Call reports are not a perfect data base for reflecting a
bank's support for small businesses. For example:
- Banks may provide lines of credit to small firms in their
region. If the line of credit is not drawn upon, a small loan
would not show up in the call reports.
- A bank may issue credit cards to small firms with the idea
that the cards should be used as working capital, to buy office
equipment, or as lines of credit.
- Larger banks may send the small business owner to its consumer
loan division; the loan would not be recorded as a business
loan.
- A larger bank may send the business person to a subsidiary
finance company. In that case, the loan would not be recorded
in the bank's call report.
- SBA loans that are sold in the secondary market will be
recorded in the number of loans. However, only the nonguaranteed
amount of these loans will be included in the dollar value
of small loans in the call report.
Loans to small business are often made in the form of a second
mortgage on the business owner's home. Many business owners
use personal credit or home equity loans for business purposes.
Again, these would not necessarily show up as small business
loans in the call reports.
The call report data used in the attached table are all that
is available to the public at this time. As more accurate
information is gained, it will be released so that depositors
and borrowers can make more informed decisions about what
local banks are "small-business-friendly."
There is controversy among researchers on how best to measure
which banks meet the needs of small business. One discussion
revolves around whether to use a single statistic like that
found in column 2 or in column 4. A ranking of banks according
to the small business loan-to-asset ratio (column 2) will
show small or medium-size banks dominating the listings. If
the ratio of loans to total loans (column 3) or the ratio
of loans to deposits (column 4) is used, a different set of
smaller banks are likely to dominate the ranking. A rank order
of the banks by either the value of small business loans (column
5), or the number of small business loans (column 6), will
tend to be dominated by large banks.
All banks, regardless of size, are important in satisfying
the lending needs of small firms. By adding up the decile
rankings we are implying that all are equally important in
meeting the lending needs of small firms. A bank's rank may
well change if additional columns are added or deleted.
A broad range of data is included so that users of the table
can create a set of rankings that suits their individual needs.
For example, if a business needs a large bank, the rankings
in columns 5, 6, or 7 may be the most appropriate ones to
consider.
In addition, there is controversy whether national rankings
should be used, as opposed to the state rankings found here.
While it is true that large business borrowing and large bank
lending take place in national or regional markets, small
business borrowing is normally in a local marketplace; it
seemed to us that state rankings were appropriate for this
study.
Future research will explore the differences between urban
and rural banks, branch and independent banks, neighboring
states, standard metropolitan statistical areas, as well as
regional groupings. If it seems meaningful to separate the
data in these ways, we will provide that information.
The Office of Advocacy plans to provide this kind of information
annually. Next year, the study will also include an emphasis
on improvements in banks' lending to small businesses.
Suggestions on how to improve the analysis are welcome. Send
comments to the study director, Dr. Robert E. Berney, Chief
Economic Advisor, U.S. Small Business Administration, Washington,
DC 20416; telephone (202) 205-6926; fax (202) 205-6928.
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Conclusion
For the first time, data on individual commercial bank lending
activities have become available. The information is being
released on a state-by-state basis by the Office of Advocacy
of the U.S. Small Business Administration to enable depositors
and borrowers to make better decisions about banking services.
A goal of the study is to make more credit available to small
business borrowers. Knowing that some successful banks are
actively making small loans to small business should encourage
other banks to compete for the small loan customer.
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Reactions to Our Preliminary Releases
"We appreciate your planned press release for banks such as
ours. A joint effort utilizing our resources and yours only
helps ensure that we reach our targeted market." First National
Bank of Bar Harbor, Bar Harbor, Maine
"All too often, the bad news receives the attention in the
media. We appreciate your agency's efforts in seeking to identify
means by which the positive news can be recognized. Thank
you for your observations of our efforts to lend to the small
business community in our area." The Twentieth Street Bank,
Huntington, West Virginia
"It has been the continuing vision of our bank that we return
deposits to their sources . . . in the form of loans in our
community. It is gratifying to have others recognize that
we have had some success in attaining our goal." Douglas County
Bank, Lawrence, Kansas
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Appendix: The American Bankers Association's Look at the Call
Reports
The American Bankers Association (ABA) has analyzed the same
call report data for the purpose of developing national averages
for these statistics by bank asset size. In the past, the
ABA has defined small business loans as those under $1 million.
For this project, the ABA did a special run, defining small
business loans as those less than $250,000. The information
presented in the table below is based on the ABA's analysis.
Aggregate Data on Small Business Lending by U.S. Banks As
Reported by the American Bankers Association, 1994
_____________________________________________________________________________
Small Business Loans to: *1
Small Business
Total Loans
Size Catagory Business ----------------------------------------------
of Bank Assets Deposits Loans Value*2 Number*3
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$500 million
and over 5.11 7.63 27.15 155.9 735
$100 to 500 million 14.48 16.90 66.91 71.0 1,133
$25 to 100 million 10.26 11.74 57.79 29.8 835
$0 to 25 million 3.61 4.15 29.73 1.3 142
Total, all banks 6.67 9.39 35.04 258.0 2,846
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Table notes:
*1. Ratio expressed as a percent.
*2. In billions of dollars.
*3. Thousands of loans.
Source: American Bankers Association, unpublished analysis of
call report data, 1994.
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Endnotes:
1. 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. Beginning in June of 1993, financial
institutions were required to report the number and amount of
what are considered small business loans. Loan size information
was mandated by Section 122 of the Federal Deposit Insurance
Corporation Improvement Act of 1991. Initially, the banking
regulators had proposed to collect the data by size of business
and by size of loan. To lessen the reporting burdens upon financial
institutions, the final requirements only mandated the reporting
of small business lending data by loan size for loans under
$1 million. The Office of Advocacy made preliminary runs with
the 1993 data to gain experience with the data base. The June
1994 call report data were purchased from the National Technical
Information Service (NTIS) in September. (A number of minor
revisions were made and a new tape was available from NTIS in
October. It was released too late to be used in this analysis.)
2. Loan size of less than $250,000 was selected in preference
to loan size of less than $1 million because the borrowers in
the first group are more homogenous than those in the second
group. That is, as loan size gets larger, business size gets
larger. The probability that the local subsidiary of a large
business will borrow $1 million is higher than their borrowing
$250,000. To minimize this "white noise" in the loan size data,
a loan size was selected that may be small for many small businesses.
(For example, the maximum loan size for an SBA guaranteed business
loan is $750,000.) But most of the borrowers in the $250,000
loan size will be small. In addition, there is an 80% correlation
between the $250,000 and $1 million loan size.
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