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Office of Advocacy |
SBA
U.S. SMALL BUSINESS ADMINISTRATION
Small Business Lending in the United States
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
Total Small Business
Business 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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