Small Business Lending: Big Banks Can Fall Short on Results


The year 2011 has seen a barrage of bad publicity for big banks, the target of many “Occupy” protesters and the source of consumer outrage over now-rescinded plans for debit card fees.

What few Americans may not realize is that many big banks are coming up short when it comes to small business lending, a vital component of economic recovery and job growth.

The Small Business Administration reported more than $30 billion in lending to 60,000 businesses for its fiscal year that ended in October, an all-time record for the 60-year-old agency. But private sector lending still lags behind for smaller-scale businesses.

U.S. banks made a record amount of S.B.A.-backed loans in 2010, reversing a four-year decline ­– but the biggest banks loaned less.

According to the New York Times, the 25 American banks with the most deposits in 2010 underwrote $3.6 billion in S.B.A. general business, or 7(a), loans.  That represents more than 20 percent of all 7(a) loans approved in 2010, down nearly a third from the share these same banks loaned in 2006.

The Biz2Credit Small Business Lending Index, an analysis of 1,000 loan applications on Biz2credit.com, found that approval rates of small business financing requests by small banks and non-bank lenders increased to their highest levels of the year during November 2011.

Credit unions, Community Development Financial Institutions (CDFI), micro lenders, and others approved 62 percent of funding requests in November, a small increase from the 61.8 percent during October.

Credit unions, which have become increasingly active in small business lending in 2011, proved 57 percent of small business funding requests, up from 56.6 percent in October. Loan approvals by small banks increased to 47 percent in November, their highest rate this year and an increase from 46.3 percent in October.

Approvals by large banks also rose, reaching 10 percent for the first time since April.

“Additionally, banks with assets between $10- $50 billion are starting to coming back in the market, albeit cautiously,” said Biz2Credit CEO Rohit Arora. “They are continuing to monitor the European financial crisis, as well as the debt battle in Congress. National and international issues impact big banks more than smaller lenders.”

So how can you determine which bank can best serve your small business needs.

There are a number of websites that can help, including MultiFunding’s bank lending grader tool. Multifunding helps connect small business owners with ideal loan terms and lenders.

Multifunding gathers data from quarterly FDIC (Federal Deposit Insurance Corp.) call reports, where each bank self-reports their active loans to small businesses with balances of $1million or less. The tool rates 6,800 banks in the United States

“We take the total small business loan balance for each bank and divide it by their total domestic deposits to grade the bank for their commitment to small business lending,” Multifunding states on their site.

The average bank in America uses 8 percent of their deposits to make small business loans, says Multifunding.

According to Small Business Trends, most banks (82.5 percent) get a grade of A or B, meaning that they use at least 10 percent or more of their deposits to make small business loans.  About 1,187 of the banks use less than 10 percent of their deposits for small business loans, getting mostly a C, D or F.  Figures are based on data as of June 30, 2011.

There are other small business lending sites with helpful guides to the best loan sources, including Biz2Credit and Intuit Loan Finder, according to Small Business Trends.

There is also the SBA’s search page for finding business loans, grants and financing.

“Right now, we’re embarking on another critical year in SBA lending,” Karen G. Mills, SBA Administrator, told members of the House Committee on Small Business in October. “We will continue to leverage our existing authority and fill market gaps so that entrepreneurs and small business owners can continue doing what they do best – create jobs.”


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