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 ../research/ or on microfiche from
the National Technical Information Service, Springfield, VA
22161, tel. (703) 605-6000 or 1-800-553-6847.
Foreword
This is the Office of Advocacy's
third report focusing on the small business lending activities
of the nation's commercial bank lenders. The report, which has
come to be known as the "small-business-friendly banks" study,
is an analysis of June 1996 call report data submitted by financial
institutions to their appropriate banking regulators.
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
Introduction
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.
Small Business Lending in the
United States
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
- Four of the five criteria
used in previous studies are retained.
- Small business loans are
still defined as loans of less than $250,000.
- Information is again provided
on loans less than $100,000 and less than $1 million to
help focus the data for the user.
- 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. The small business
lending behavior of every commercial bank in each state
has been rank-ordered to help depositors and borrowers identify
the small-business-friendly banks in their respective states.
What Is Different
- The summary total statistic
that determines rank does not include the ratio of small
business loans to total deposits. This change permits a
more balanced analysis of small business lending performance
between large and small banks.
- A second table has been added
to identify the small-business-friendly banks by asset size
classification.
- Bank asset size classes were
revised to reflect recent market changes in the banking
structure.
- Banks with a high ratio of
credit card activity are identified.
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:
- Banks may provide lines of
credit to small firms in their region. If the line of credit
is not used, it may not be reported.
- Banks may issue consumer
credit cards or other forms of consumer credit to small
businesses for working capital (e.g., to buy office equipment).
These credit sources may be categorized by a bank as lines
of credit or as consumer loans.
- Large banks may make loans
to small businesses under their consumer loan divisions,
classifying the loans as consumer loans.
- Large banks may send the
business person to its subsidiary finance company.
- SBA-guaranteed loans sold
in the secondary market will be recorded in the number of
loans made by banks. It is believed, however, that only
the non-guaranteed portion of these loans is included in
the dollar value of small loans 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.
- Small business owners may
use their personal credit cards to finance their business.
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.
Small Business Lending in the
United States, 1994-1996
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 State Tables
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.
Explanation of Columns for the
State Tables
(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.
Explanation of Additional Data
Provided in the Tables
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").
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 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]
Related Studies and Future Activities
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:
*
../research/1996.html
* ../research/1995.html
* ../research/1994.html
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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