Business Loans Debate: Do Big Banks Lend Enough to Small Business?




The Wall Street Journal got Ami Kassar, chief executive of MultiFunding LLC small-business loan advisors, and Marc Bernstein, executive vice president, Wells Fargo small business segment, to write about small business loans of big banks.

Ami Kassar urges big banks to  increase their lending to small businesses.  He cites the FDIC (Federal Deposit Insurance Corporation) data that says only 16% of small business loans in the US come from the top 5 big banks.  Kassar’s organization receives quarterly FDIC reports showing bank data on small business loans with $1 million or less balances.  The June 2011 data indicates that banks across the nation lent fewer loans compared to June 2007, the beginning of the recession.

MultiFunding LLC recently published a study of FDIC data where big banks shed billions of small business loans while smaller banks increased their loan balances by $17 billion.  This is about 25% reduction in exposure to small business loans of the larger banks.

Kassar blames the larger banks’ “slow, cumbersome, and bureaucratic loan processes that consume time, and simply don’t work”.  “Because of their size and complexity, most big banks have layers of decision makers in their loan processes” he continues.

MultiFunding LLC has come up with lending grades for FDIC-regulated banks in America.  Small business owners may consult this list so they can avoid approaching banks with C or lower grades when they apply for loans.

On the other hand, Marc Bernstein of Wells Fargo, cites a National Federation of Independent Business survey where only 4% of its small business membership answered credit availability as their top concern.  The fact that some borrowers have difficulty in repaying their loans is a factor why a Wells Fargo & Gallup survey in October came up with 34% respondents saying getting credit is “very difficult” or “somewhat difficult” .

Wells Fargo has increased its lending through the SBA 7(a) loans by 8% from 2011; reaching $10.3 billion in the first 3 quarters of 2011, Bernstein adds.

The top 5 big banks in our country hold 40% of all domestic deposits ($2.965 trillion), yet only make 16%, ($97.3 billion) of all the small business loans in America, according to data reported by the FDIC.

In a recent study published by my company, MultiFunding LLC, we dug into that data and found that the bigger banks shed $93 billion of small business loans during this period, while the smaller banks increased their small business loan balances by $17 billion.

At MultiFunding, we’ve actually given every FDIC regulated bank in America a grade for its small business lending, based on the ratio of its small business loans to its domestic deposits. Of the 6,800 banks in our analysis, the good news is that 5,600 of them (82%) either got an A or a B grade. Unfortunately, 70 of the 100 largest banks in America got a grade of C or below. Thirty banks got an F. Small business owners might want to avoid wasting their time applying for loans at these banks.

In a survey released in November by the National Federation of Independent Business of its small-business membership, only 4% cited credit availability as their top concern, and only 9% said that not all of their credit needs were satisfied.

Wells Fargo and Gallup together conduct a quarterly survey more representative of smaller businesses. In October, 34% responded that it was “very difficult” or “somewhat difficult” getting credit.

Compare the 2005-2007 period to today. Revenues in many industries have still not fully recovered from the Great Recession. But even in this environment, the overwhelming majority of small businesses don’t report difficulty getting a loan.

Wells Fargo is saying “yes” to all the small business loan applications we possibly can, often taking a “second look” at applications initially declined. We’ve grown our SBA lending team over the last two years and, for the 2011 federal fiscal year, approved a record $1.2 billion in SBA 7(a) loans. All new loans we made to businesses with revenues under $20 million reached $10.3 billion in the first three quarters of 2011, up 8% over the same period last year. …

Photo by Loren Javier

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