Foreword
This is the Office of Advocacy's
fourth report focusing on the small business lending activities
of the nation's commercial banks. The report, which has
come to be known as the "small-business-friendly banks"
study, is an analysis of June 1997 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
23 million strong-employ about 53 percent of the private
work force, contribute 47 percent of all sales in the country,
create most of the new jobs, and produce 55 percent of innovations.
Small firms keep our market-based system efficient and successful;
they keep the nation competitive in global markets.
Commercial banks are among
the largest sources of credit to small business. Commercial
banks had $117 billion in small commercial and industrial
loans outstanding and $67 billion in small commercial mortgage
loans for a total of $184 billion in bank credit to small
businesses as of June 1997.Banks are the leading supplier
of credit to small firms, accounting for 54 percent of total
traditional small business credit used in 1993, according
to the 1993 National Survey of Small Business Finances.
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 commercial banking, such as interstate branching and
fluctuations in interest rates, will have many more significant
effects on small businesses than on large ones. Most large
firms can tap other capital sources such as the stock, corporate
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 report, like previous
editions, 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.
The 1997 edition of Small
Business Lending continues the improved format used
in the 1996 edition. Four ratios were again used to determine
the rankings of the lenders, as described in detail in the
introductory material of the report. It is the Office of
Advocacy's hope that the 1997 banking study will continue
to focus attention on the importance of commercial banks
to the start-up and growth of small business and to point
out to commercial bankers the profitability of small business
lending.
Adequate information ensures
a competitive market. The more competitive a market is,
the more efficient the market becomes in providing more
and better quality services at lower cost. Overall, the
data in these reports show that small business loan markets
are not static. Bank rankings shift from year to year. Among
the findings of particular interest in the banking study
are the following:
- Analysis of the 1994-1996
data shows that banks that were small-business-friendly
were more profitable than banks that made few small business
loans. Dr. Ralph C. Kimball, in "Specialization,
Risk and Capital in Banking" (New England Economic
Review, November/December 1997), also confirms this
argument. This insight casts doubt on an operating principle
of many banks-that loans to small businesses are riskier
and less profitable. If banks continue to explore these
profitable opportunities, access to commercial bank credit
should improve for small firms.
- Small business lending continued
to increase in 1997, but at a slower rate than lending
to large businesses. Loans in the three small-loan categories
increased at rates of 4.1 to 5.7 percent, while loans
over $1 million increased 10.9 percent.
- The increase in the number
of small business loans in 1997 was impressive, up 25
percent from June 1996 through June 1997. Most of the
increases came in the smallest loans, those under $100,000.
This report would not be complete
without a note about banks' participation in the lending
programs of the U.S. Small Business Administration. If a
bank participates in SBA's loan programs and utilizes secondary
markets extensively, the bank's "small business friendliness"
ranking in this study may be artificially low. Banks participating
in SBA's Preferred Lender or Certified Lender programs should
be considered small-business-friendly, and small businesses
seeking loans should certainly seek out banks that participate
in the SBA's loan programs.
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
U.S. House of Representatives and Senate Committees on Small
Business and Banking, and many individual users of the previous
directories. Your comments and suggestions are valuable
and truly welcome.
For those with access to the
Internet, the studies are available at ../stats/lending/.
Jere W. Glover
Chief Counsel for Advocacy
U. S. Small Business Administration
Introduction
Small business is the keystone
of the United States economy. In 1996, some 23 million small
businesses employed 53 percent of the private work force
and received 47 percent of all receipts in the country.
The small business sector also accounted for 51 percent
of private sector gross output in the country in 1992.(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 borrowed
obtained their money from commercial banks, according to
the 1993 National Survey of Small Business Finances.(2)
The survey found that of a total of $668 billion in small
business credit outstanding from traditional sources, commercial
banks supplied 54 percent, a much larger share than the
13 percent supplied by finance companies, the next most
prominent lender.
Both banks and finance companies
have actively participated in the U.S. Small Business Administration's
business loan guaranty programs. Most small business loans
by banks, however, are not guaranteed by SBA.
As firms grow, 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 employee,
- 64 percent of firms with
2-4 employees,
- 71 percent of firms with
10-19 employees,
- 87 percent of firms with
100-499 employees.(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 fourth straight year,
the Office of Advocacy is releasing its analysis of call
report data on the lending activity of some 9,300 individual
reporting 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
appropriate information from commercial banking institutions
on all commercial loans under $1 million.
In 1994 the Office of Advocacy
first 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; reports have been published every year since.
Each year, the Office of Advocacy also published two related
studies, The Bank Holding Company Study and Micro-Business-Friendly
Banks in the United States.
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 higher
in some 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, a major revision
was made in the 1996 study. Four variables were used to
rank the small business lending activities of individual
banks: (1) the ratio of small business loans to total assets,
(2) the ratio of small business loans to total business
loans, (3) the dollar value of small business loans, and
(4) the number of small business loans. This rating scheme
is better than the version used in previous editions for
balancing scores between community banks and large financial
institutions.
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
all banks within a state for any given variable. Decile
rankings range from 1 to 10. A 10 means that the bank is
in the top 10 percent of all banks in the state; a 1 means
the bank is in the lowest 10 percent in the category.) A
bank's summary total statistic is the sum of its decile
rankings in the four categories. The highest possible summary
score for a bank is 40; the lowest is 0 if a bank does not
lend to small businesses and is not ranked in any category.
The 1997 Study
The 1997 study retains major
features of the 1996 study, namely:
- Four criteria are used.
- Small business loans are
defined as loans of less than $250,000.
- Information is again provided
on two other loan sizes-micro loans under $100,000 and
larger loans under $1 million-to help users focus on their
unique credit needs.
- Data are again provided
on a state-by-state basis, a format that is most relevant
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.
- A second table identifies
small-business-friendly banks by their asset size classification.
- Five bank asset size classes
are used.
- Banks with a high ratio
of credit card activity are identified.
Limitations of the Study
It is important to note that
call report data tell only a part of the story about lending
to small business, namely the commercial banking part. Small
businesses certainly have access to other sources of credit,
such as finance companies, 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 will not be reported as a loan.
- 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.
- Many multi-state bank holding
companies may not report the lending operations of a member
bank in a certain state separately because of reporting
consolidation.
- Large banks may make loans
to small businesses under their consumer loan divisions,
classifying the loans as consumer loans.
- Large banks may send business
persons to subsidiary finance companies.
- 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 businesses.(5)
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 businesses
in the U.S. economy. And they are currently the only source
of small business lending information publicly available.
A Note about SBA Lending Programs
Small businesses seeking loans
should also seek out banks that participate in the SBA's
loan programs. SBA participating banks that utilize secondary
markets extensively may receive artificially low rankings
in this study. SBA Preferred or Certified Lenders should
certainly be considered small-business-friendly.(6)
Small Business Lending in the United States, 1997
Total small business loans
(7) outstanding amounted to $184 billion in June 1997.(8)
While the number of banks continued to decline in 1997,
(9) overall growth in business lending continued. Taking
into consideration some reporting differences from the 1996
study for one bank, the Office of Advocacy estimates the
growth in small business loans at 4.1 percent for loans
under $100,000, 4.9 percent for loans under $250,000 and
5.7 percent for loans under $1 million (Table A).(10) These
growth rates were far smaller than the growth rates for
larger loans, which increased 10.9 percent.
The number of small business
loans increased very significantly, by 25 percent between
June 1996 and June 1997. Most of the increase was in the
smallest loans under $100,000 (See Table B and Chart).
Bank consolidations continued
to affect the relative importance of banks of different
sizes in the small business loan market.(11) While the number
of very small banks (assets of less than $100 million) declined,
banks with assets between $250 million and $1 billion increased
in 1997 (Table C).
Bank consolidations seemed
to be happening at two levels. The number of banks in the
$500 million to $1 billion asset size group increased significantly
as small banks merged to grow or were acquired by larger
medium-sized banks. Mergers and acquisitions resulted in
declines in the number of banks in both the $1 billion to
$10 billion and the over $10 billion asset size categories.
Total assets, total business
loans and total small business loans increased significantly
in banks with assets between $500 million and $1 billion
and in banks with assets over $10 billion.
| <$100,000 |
2.8 |
4.8 |
4.1 |
| <$250,000 |
5.4 |
5.1 |
4.9 |
| <$1
Million |
7.3 |
5.4 |
5.7 |
| >$1
Million |
12.8 |
5.1 |
10.9 |
| Total |
10.8 |
5.2 |
8.8 |
*Changes for 1996-1997 were
calculated with data for Keycorp excluded. See footnote
8.
Note: Dollar amount in nominal
values, not adjusted for inflation.
| <$100,000 |
8.6 |
8.8 |
26.8 |
| <$250,000 |
8.9 |
8.5 |
25.0 |
| <$1
Million |
9.1 |
8.4 |
23.6 |
*1996-1997 changes were calculated
without data for Keycorp. See footnote 8.
Table C. Number of Reporting
Banks by Asset Size, 1995-1997
| <$100
Million |
6,980 |
6,465 |
6,047 |
| $100
Million-$500 Million |
2,521 |
2,548 |
2,590 |
| $500
Million-$1 Billion |
256 |
260 |
292 |
| $1
Billion-$10 Billion |
326 |
326 |
300 |
| >$10
Billion |
66 |
71 |
64 |
| Total |
10,149 |
9,670 |
9,293 |
The small business emphasis
in banks of different sizes also changed in 1997. While
very large banks with assets over $10 billion increased
their small business lending much more than small banks,
the percentage increases in small business loans were less
than the increases in their total assets or total business
loans. The result is a decline in the ratio of small business
loans to total assets in these bank holding companies. Nevertheless,
they showed very large increases in the number of the smallest
loans and they are promoting more small business credit
cards and small lines of credit for small firms.(12)
The State Tables
The 1997 state directories
each contain three tables. Table 1, Small Business Lending
in the United States, June 1997, lists all the banks in
the state and ranks their small business lending activities.
Table 2, Small-Business-Friendly Banks by Bank Size, June
1997, lists the small-business-friendly banks in the state
by bank size group. 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 (as
reported in Table 1).(13) Table 3 lists the number of banks
in each size class in each state.
Explanation of Columns for the State Tables
For the convenience of the
reader, a sample table entry is provided on page 10.
Column 1, Total Rank. The
total found in the first column is the ranking of the bank
in the state in which 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. The lowest score of 0
indicates that there is no evidence of the bank's lending
to small businesses.
Column 2, Rank of the Ratio
of Small Business Loans to Total Assets (SBL/TA). This column
shows each bank's decile ranking for the ratio of small
business loans to total assets. A ranking of 10 means that
the bank is in the state's top decile of its small business
loan-to-asset distribution. The bank has an outstanding
record in lending to small businesses and is willing to
risk a larger portion of its assets in small business lending.
Column 3, Rank of the Ratio
of the Dollar Amount of Small Business Loans to Total Business
Loans (SBL/TBL). The third column displays the bank's decile
ranking for the ratio of small business loans to total business
loans.
Column 4, Rank of Total Dollar
Amount of Small Business Loans (SBL($)). This column shows
the decile ranking of a bank's dollar value of small business
loans outstanding.
Column 5, Rank of Total Number
of Small Business Loans (SBL(#)). This column displays the
bank's decile ranking for the total number of small business
loans outstanding.
Column 6, Bank Asset Size
Class. Here the asset size class of the reporting bank is
defined. The asset size classes are as follows:
-
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)
- $10 billion and over (>10B)
Column 7, Rank by Bank Asset
Size Class. This column displays how well a bank is doing
in its respective asset size class based on the summary
ranking found in column 1. Thus, a 1 in this column means
that the bank ranks first in its asset size class. A 7 means
that it ranks seventh in its asset size class. The number
of banks in each asset size class in each state can be found
in Table 3. The total includes all commercial banks filing
call reports.
Column 8, Dollar Amount of
Small Business Loans (SBL($)). This column lists the dollar
amount (in thousands) of small business loans of less than
$250,000.
Column 9, Number of Small
Business Loans (SBL(#)). This column lists the number of
small business loans of less than $250,000 made by the bank.
Column 10, Rank of the Ratio
of Micro Business Loans to Total Assets (SSBL/TA). Displayed
here is an additional decile ranking for the ratio of very
small loans (loans under $100,000, also called micro loans)
to the bank's assets. This information allows a small business
to find a bank that makes relatively more smaller loans.
A firm looking for a loan of $50,000 might be better served
by a bank making more loans under $100,000 than a bank concentrating
on loans of $1 million.
Column 11, Rank of the 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 loan might want to seek out a
bank doing a high volume in loans under $1 million.
Column 12, Rank of the 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, Growth of Bank's
Total Assets (TA97/96) This displays the percentage growth
in the bank's total assets from 1996 to 1997.
Column 14, Credit Card Banks
(Crd.Card). 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 between these 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.
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 the lender rankings.
The Office of Advocacy will also publish a 1997 edition
of Micro-Business-Friendly Banks in the United States.
This study rank-orders the top banks in each state in
terms of their microlending (loans of $100,000 and less).
Another report, The Bank Holding Company Study, 1997
Edition, ranks the multi-billion-dollar bank holding
companies according to the dollar amount of small business
loans issued as well as the four criteria used in this study.
Suggestions
Suggestions on how to improve
the study are welcome. Send written comments to: Office
of Advocacy, U.S. Small Business Administration, Mail Code
3112, 409 Third Street, S.W., Washington, DC 20416. Or fax
your comments to (202) 205-6928. Comments and technical
questions may be addressed to Dr. Charles Ou, Office of
Advocacy, U.S. Small Business Administration, telephone
(202) 205-6966 or e-mail at Charles.Ou@SBA.gov.
Accessing the Study
You may access the 1997 edition
of Small Business Lending in the United States on
the Internet's World Wide Web at the following address:
../stats/lending/
The three previous editions
of Small Business Lending in the United States are
also available at the same address.(14)
Paper and microfiche copies
of all Office of Advocacy reports are also available for
purchase from the National Technical Information Service,
telephone (703) 487-4650.
Table 1. Small
Business Lending in Alabama, June 1997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| STATE
BANK |
Springfield
|
40 |
10 |
10 |
10 |
10 |
100M-500M |
1 |
48,381 |
993 |
10 |
9 |
10 |
2.1
|
|
| EAST
BANK |
Birmingham
|
39 |
10 |
10 |
10 |
9 |
100M-500M |
2 |
39,988 |
573 |
10 |
10 |
10 |
5.3 |
|
| WEST
HOME TRUST |
Mobile
|
39 |
10 |
10 |
10 |
9 |
100M-500M |
4 |
42,547 |
815 |
10 |
9 |
10 |
19.2 |
|
| PEOPLES
CENTRAL |
Springfield
|
39 |
9 |
10 |
10 |
10 |
100M-500M |
3 |
72,524 |
1,364 |
9 |
7 |
9 |
3.0 |
|
| FIRST
STATE TOWN BANK |
Birmingham
|
37 |
10 |
10 |
9 |
8 |
<
100M |
1 |
27,292 |
477 |
10 |
10 |
10 |
10.9 |
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Source:
Office of Economic Research, Office of Advocacy, U.S.
Small Business Administration from Consolidated
Reports of Condition and Income for U.S. Banks, June
1997. |
|
Key to Tables (by Column Number)
(1) TOTAL: Summary rank statistic is the
sum of columns 2-5: The higher the number, the more small-business-friendly
the bank. Top score is 40 out of 40.
(2) SBL/TA: Decile rank based on the ratio
of small business loans (less than $250,000) to total assets.
(3) SBL/TBL: Decile rank based on the ratio
of small business loans to total business loans.
(4) SBL($): Decile rank based on the dollar
amount of small business loans.
(5) SBL(#) Decile rank based on the number
of small business loans made (outstanding).
(6) Bnk Asset Sz ($): Bank asset size class
based on total domestic assets in dollars.
(7) Rank by Bnk Sz: Rank based on total
assets within bank asset size class for each state.
(8) SBL($): Small business loan amounts
in thousands of dollars.
(9) SBL (#): Number of small business loans
made (outstanding).
(10) SSBL/TA: Decile rank based on ratio
of super-small business loans (or micro-loans of less than
$100,000) to total assets.
(11) LSBL/TA: Decile rank based on ratio
of larger small business loans (less than $1 million) to
total assets.
(12) SBL-FL/TA: Decile rank based on the
ratio of total small business loans (business and farm loans
under $250,000) to total assets.
(13) TA(97/96): Percentage growth in the
bank's total assets from 1996 to 1997.
(14) Crt Cd: A double asterisk indicates
the ratio of total credit card loans to total assets is
greater than 0.2 for the bank.
1. Office of Advocacy, U.S. Small Business Administration,
Small Business Answer Card, 1996. See also Joel Popkin and
Company, The Small Business Share of Private, Nonfarm Gross
Domestic Product, PB97-180723 prepared for the Office of
Advocacy, U.S. Small Business Administration (Springfield,
Va.: National Technical Information Service, February 1997).
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. Cole and Wolken, 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 regulators.
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. The National Survey of Small Business Finances found
that 27.6 percent of small businesses used business credit
cards and 39.2 percent used personal credit cards for business
purposes.
6. Some 400 SBA Preferred Lenders have been given full authority
to guarantee SBA loans. More than 1,000 SBA Certified Lenders
perform the primary analyses for SBA lending.
7. Small business loans outstanding as reported by banks
should include those portions of small business loans made
under the SBA's business loan guaranty programs that are
not sold and remained on the bank's books.
8. Not comparable with the 1996 estimates. Keycorp of Ohio
informed the SBA of a discrepancy in their small business
lending data that resulted in an erroneous report. A correct
report was not available for this publication.
9. While the number of reporting banks declined, the total
number of banking offices did not. Also, the number of reporting
banks may have declined because of consolidation in financial
reporting by many multi-unit bank holding companies.
10. Keycorp's figures for both 1996 and 1997 are excluded
from these growth estimates. See footnote 8.
11. The following discussion on changing banking structures
should be interpreted with caution. Changes in the number
of reporting banks could be caused by the financial reporting
consolidation of bank holding companies.
12. See The Bank Holding Company Study, 1997.
13. For some large bank classes, a second bank was added
when the top bank was found to have considerable credit
card activity.
14. Or at
1996,
1995,
and 1994/.
Updated on March 31, 1998
