Small Business Research Summary No. 288 Small and Micro Business Lending for 2004-2005 Office of Advocacy, U.S. Small Business Administration The Office of Advocacy prepares an annual study of institutional lending to small firms. The study provides a review of lending activities based on two types of data that lenders report to their regulating agencies—the Consolidated Reports of Condition and Income (call reports) for June 2005 and the Community Reinvestment Act (CRA) reports for 2004. Because data are available only by the size of the loan, small business loans are defined as business loans under $1 million, and micro business loans are those under $100,000. The report includes a discussion of developments in the small and micro business lending activities of institutional lenders. The report examines small business lending in the economy by all lenders in the United States. No attempt has been made to distinguish SBA-guar-anteed lenders in the analysis. Lenders are ranked based on their overall lending, not lending under SBA programs. Part one reviews developments apparent in the call report data from June 2004 through June 2005 and the CRA database for the year 2004. Part two provides directories of the top small and micro business lenders in the 50 states, the District of Columbia, and some U.S. territories. For the reader’s convenience, national tables for multibillion-dollar banks and bank holding companies are presented before state tables for all banks, not because bank holding companies are more important in small business lending, but because the tables are shorter. This year’s edition has been expanded to include savings banks and savings and loans associations, in addition to commercial banks. Geographic coverage has been expanded to include American Samoa, Guam, Puerto Rico, and the U.S. Virgin Islands. Overall Findings Amid a slowing economy, the rate of small business lending growth in the United States slowed down in 2005 relative to the previous year. Small business credit cards remained the most dynamic market; the number of small business loans outstanding (for loans under $100,000) grew by 25 percent, from 15.2 million in June 2004 to 19.0 million in June 2005. Highlights • Total small business loans outstanding for the 8,799 reporting depository institutions in the U.S. and territories were valued at $601 billion for 21.0 million loans in June 2005. This compares with a total of $577.1 billion in value and 17.1 million in number in the previous year. There were 19.0 million micro business loans outstanding in June 2005, valued at $138.4 billion; in June 2004 there were 15.2 million micro business loans outstanding valued at $135.9 billion. • The rate of growth in small business borrowing slowed from the previous year; the value of all small business loans outstanding increased 4.1 percent; the largest increase came from the larger small business loans ($100,000 to $1 million). The smallest loans (under $100,000) rose a meager 1.9 percent in spite of a huge increase in the number of loans. • The number of small business loans, however, resumed their large increases, growing by 22.6 percent between June 2004 and June 2005. The increase was concentrated in the smallest loans, the number of which rose from 15.2 million to 19 million in June 2005. This constituted an increase of 25 percent as compared with a decrease of 11 percent between June 2003 and 2004. (The one-year decline was in large part an accounting phenomenon.) • Multibillion-dollar lending institutions continued to grow through mergers and acquisitions. Many large lending institutions (most of them bank holding companies—BHCs), saw their total assets increase by 20 percent or more. While the number of multibillion dollar lending institutions with total domestic assets of more than $10 billion declined from 104 in June 2004 to 101 in June 2005, their share of total assets grew to 73.8 percent (as compared with 72.8 percent the year before). • The largest lenders continued to focus on the market for loans under $100,000, especially the business credit card market. This market accounted for 70 percent of the total number of micro business loans in June 2005. The largest lenders’ share of the market for loans between $100,000 and $1 million remained relatively unchanged, in both amount and number. • The CRA reports confirm large lending institutions’ lending growth in 2004 and their continued promotion of small business credit cards. In 2004, the 1,484 CRA-reporting institutions extended 8.1 million loans that were less than $1 million, for a total of $288 billion in small business loans. This compares with 7.8 million loans valued at $271 billion in 2003 extended by 1,562 entities. For micro business loans, 7.5 million micro business loans valued at $95 billion were made in 2004, compared with 7.3 million loans valued at $87 billion in 2003. Scope and Methodology This study provides a review of lending activities for depository institutions in 2004-2005 based on two types of data reported by lending institutions to their regulating agencies—the call reports for June 2005 (for the amount and number of outstanding loans) and the CRA reports for 2004 (for loans made during the year). Since the reported data are available only by the size of the loan (not by the size of the business), small business loans are defined as business loans under $1 million; micro business loans are defined as loans under $100,000. Developments in lending activities over time by lending institutions are analyzed based on the call report statistics for several variables. However, because of the changing number of lending institutions required to file CRA reports, year-to-year changes in these institutions’ activities are more difficult to interpret than for the call reports. Large lending institutions (with total domestic assets of more than $10 billion) are ranked and reported separately, under the presumption that they serve a national market. Rankings by state are made for all reporting lenders on the basis of the designated headquarters state of the reporting lending institutions (see Table 5 for the number of institutions in each state). Two ranking methods are used, depending upon the availability of data. For lending institutions where information on total assets and total business loans are available (those filing call reports), four criteria are used as the basis for a lender’s performance ranking. A summary rank for four decile ranks is computed for each institution in the state rankings. A decile ranking is first used for individual criteria; decile rankings range from 1 to 10. Lending institutions in the top 10 percent of all lenders in the state receive the maximum score of 10; banks in the lowest 10 percent receive a score of 1. Lenders that do not lend to small businesses (loans under $1 million) receive a 0. Four top scores will sum to 40. To make the top score total 100 rather than 40, each score is multiplied by 2.5. For state lending using the CRA data, lenders were listed in order of the dollar amount of small business loans made in each state in 2003. Large institutions therefore appear at the top. Simple rankings were used for multibillon dollar lending institutions because only a small number of lenders are involved. This report was peer reviewed consistent with Advocacy’s data quality guidelines. More information on this process can be obtained by contacting the director of economic research at advocacy@sba.gov or (202) 205-6533. The opinions and recommendations of the authors of this study do not necessarily reflect official policies of the U.S. Small Business Administration or other agencies of the U.S. government. Ordering Information The full text of this report and summaries of other studies performed under contract with the U.S. Small Business Administration’s Office of Advocacy are available on the Internet at www.sba.gov/advo/research. Copies are available for purchase from: National Technical Information Service 5285 Port Royal Road Springfield, VA 22161 (800) 553-6847 or (703) 605-6000 www.ntis.gov Order number: PB2007-103423 Paper copy A07 ($38.00) Microfiche A02 ($20.00) CD-ROM A00 ($29.00) Electronic download A00 ($22.95) For email delivery of Advocacy’s newsletter, press, regulatory news, and research, visit http://web.sba.gov/list. For Really Simple Syndication (RSS) feeds, visit www.sba.gov/advo/rsslibrary.html. Foreword I am pleased to provide the newest edition of the Office of Advocacy’s annual study of lending to small and micro businesses by most depository institutions in the United States. This year, coverage has been expanded in two respects—federal and state savings banks and savings and loans associations are included, and geographic coverage has been extended to the U.S. territories. This study covers both small business lending (loans of less than $1 million) and micro business lending (loans of less than $100,000) for all reporting institutions and for multibillion-dollar lending institutions for the 2004–2005 period. The source information consists of two types of data reported by depository institutions to their respective regulating agencies—Consolidated Reports of Condition and Income (call reports) for June 2005 and the Community Reinvestment Act (CRA) reports for 2004. The report provides data on the top institutions lending to small businesses in each state. Advocacy’s website contains additional data listing the lending activity of all lenders in the 50 states, the District of Columbia, and selected U.S. territories (as Tables 3A and 3B expanded). It is useful to both small businesses in search of loans and lenders who seek to compare themselves to their competitors. This study examines small business lending in the economy by all lenders in the United States. No attempt has been made to distinguish SBA-guaranteed lenders in the analysis. Lenders are ranked based on their overall lending, not lending under SBA programs. The lending studies may also be viewed on the Office of Advocacy’s homepage, www.sba.gov/advo/research/lending.html. If you have questions or comments, write to the Office of Advocacy, U.S. Small Business Administration, Mail Code 3112, 409 Third St., S.W., Washington, D.C. 20416, or fax (202) 205-6928. Technical questions may be addressed to Charles Ou or Victoria Williams, at (202) 205-6530 or by e-mail: charles.ou@sba.gov or victoria.williams@sba.gov. We welcome your comments and suggestions. Chad Moutray Chief Economist and Director of Economic Research Small Business and Micro Business Lending, 2004-2005 Introduction Access to credit is vital for small business survival. The most important institutional supplier of credit to small firms is the banking system, according to the 1998 Survey of Small Business Finances. Of a total of $700 billion in small business credit outstanding from all credit sources at the end of 1998, commercial lenders supplied 57 percent, compared with 12 percent supplied through owners’ loans and 11 percent from finance companies.1 Critical to the health and growth of a small business is knowledge of how lending institutions are meeting small firm credit needs and which lenders are investing in small businesses. Such information helps small businesses save precious time and shop efficiently for credit. It also helps lending institutions to know about the competition in the markets in which they participate. This annual edition of Small Business and Micro Business Lending in the United States provides current data on small and micro business loans and on the lending institutions that serve them. This study examines small business lending in the economy by all lenders in the United States. No attempt has been made to distinguish SBA-guaranteed lenders in the analysis. Lenders are ranked based on their overall lending, not lending under SBA programs. The study combines data on both small business and micro business lending to provide a brief review of these activities in 2004–2005. This report is based on two types of data reported by lenders to their respective regulating agencies—the call reports for June 2005 (for information on loans outstanding) and the Community Reinvestment Act (CRA) reports for 2004. Data are available only for the size of the loan and not for the size of the business. As such, the following definitions are used: • Small business loans are defined as business loans under $1 million. • Micro business loans are defined as business loans under $100,000. This year’s study provides an expanded coverage of small business lending in two respects—it includes savings banks and savings and loans associations in addition to commercial banks; and geographic coverage has been expanded to include banks in several U.S. territories: American Samoa, Guam, Puerto Rico, and the U.S Virgin Islands.2 Part One discusses developments in small and micro business lending activities by institutional lenders in the United States. The first section discusses developments apparent in the call report data; the second section discusses developments based on the CRA database. The analysis is based on data for three years, from June 2003 through June 2005 for call reports and from 2002 through 2004 for CRA reports. Part Two provides directories of the top small and micro business lenders in the states and territories using both the call report and CRA data. For the reader’s convenience, national tables for multibillion-dollar lending institutions are presented before state tables for all lending institutions; this is not because these giants are more important in small business lending, but because the tables for them are shorter. While these two databases have limitations as indicators of both the supply of loans from lending institutions and the small business demand for loans, their usefulness cannot be denied—they are the only publicly available sources of information on the small business lending activities of individual lending institutions. Accessing the Study The current and all previous editions of Advocacy’s lending studies are on the Internet at www.sba.gov/advo/research/lending.html. Paper and microfiche copies are also available for purchase from the National Technical Information Service, telephone (703) 487-4650. Suggestions Send written comments or suggestions to the Office of Advocacy, U.S. Small Business Administration, Mail Code 3112, 409 Third St., S.W., Washington, D.C. 20416, or by fax to (202) 205-6928. Technical questions may be addressed to Dr. Charles Ou or Ms. Victoria Williams, at (202) 205-6530 or by email: Charles.Ou@sba.gov or Victoria.Williams@sba.gov. Part One: Developments in Small and Micro Business Lending I. Findings from the June 2005 Call Reports3 A. Small Business Loans Outstanding from All Reporting Lending Institutions The rate of growth in borrowing from lending institutions slowed down from the previous year. Overall, small business loans (less than $1 million) by depository institutions showed smaller increases between June 2004 and June 2005 than in the previous period. The dollar amount of all small business loans outstanding increased 4.1 percent, from $577 billion in June 2004 to $601 billion in June 2005.4 (See Tables A, B, and C.) Again, the larger increase came from the larger small business loans ($100,000 to $1 million). These increased 4.8 percent, as compared with 1.9 percent for smallest size loans (under $100,000). The number of small business loans, however, resumed their large increases, and increased 22.6 during June 2004 and June 2005 (Table C). Large corporate borrowing contributed to a larger increase in the value of all business loans outstanding. These increased from $1.51 trillion to $1.68 trillion, an 11.1 percent increase, compared with the previous period’s 4.6 percent increase.5 As interest rates rose in the money markets, corporate borrowers returned to lending institutions for short-term and medium-tern financing. Mezzanine borrowing to finance merger and acquisition activities also increased significantly. B. Total Micro Business Loans Outstanding in the United States Changes in the value and the number of the micro business loans (under $100,000) remain difficult to interpret, for various reasons.6 However, both the number and the dollar amounts of loans under $100,000 increased during this period—the dollar amounts increased from $136 billion to $138 billion, an increase of 1.9 percent, and the number increased from 15.2 million loans to 19 million loans in June 2005. This is an increase of 25 percent as compared with a decrease of 11 percent between June 2003 and 20047 (Tables B and C). Most major small business credit card lenders continued to promote small business credit cards as indicated by the increased number of credit card accounts. The small increases in the dollar amount reflect a smaller increase in the demand for short-term financing in a slower economy. Table A. Dollar Amount and Number of Small Business Loans, June 2003–June 2005, by Loan Size (Dollars in Billions, Numbers in Millions) ______________________________________________________________________________________________________________________ Percent Change Loan Size 2003 2004 2005 June 2004– June 2005 ______________________________________________________________________________________________________________________ Under $100,000 Dollars 136.8 135.9 138.4 1.9 Number 17.14 15.24 19.02 24.8 $100,000 to under $1 million 411.5 441.3 462.3 4.8 Number 1.77 1.89 1.98 5.0 Under $1 million Dollars 548.1 577.1 600.8 4.1 Number 18.91 17.13 21.00 22.6 Total Business Loans Dollars 1,446.0 1,512.6 1,680.8 11.1 _____________________________________________________________________________________________________________________ Source: U.S. Small Business Administration, Office of Advocacy, Small Business Lending in the United States, various years, and special tabulations of the June 2005 call reports (Consolidated Reports of Condition and Income for U.S. banks and thrift institutions prepared for the Office of Advocacy by James Kolari, Texas A&M University, College Station Texas). Table B. Percent Change in the Dollar Amount of Business Loans by Loan Size, June 2003–June 2005 ______________________________________________________________________________________________________________________ Loan size June 2003–June 2004 June 2004-June 2005 ______________________________________________________________________________________________________________________ <$100,000 -0.5 1.9 $100,000-$1 million 7.2 4.8 <$1million 5.3 4.1 >$1 million 4.6 11.1 _______________________________________________________________________________________________________________________ Source: U.S. Small Business Administration, Office of Advocacy, Small Business Lending in the United States, various years, and special tabulations of the June 2005 call reports (Consolidated Reports of Condition and Income for U.S. banks and thrift institutions prepared for the Office of Advocacy by James Kolari, Texas A&M University, College Station Texas). Table C. Percent Change in the Number of Small Business Loans by Loan Size, June 2003–June 2005 ________________________________________________________________________________________________________________________ Loan size June 2003–June 2004 June 2004-June 2005 ________________________________________________________________________________________________________________________ <$100,000 -11.1 24.8 $100,000–$1 million 6.6 5.0 <$1 million -9.4 22.6 _________________________________________________________________________________________________________________________ Source: U.S. Small Business Administration, Office of Advocacy, Small Business Lending in the United States, various years, and special tabulations of the June 2005 call reports (Consolidated Reports of Condition and Income for U.S. banks and thrift institutions prepared for the Office of Advocacy by James Kolari, Texas A&M University, College Station Texas). C. Small and Micro Business Loans Outstanding from Multibillion-Dollar Lending Institutions Bank consolidations continued during June 2004 and June 2005 as indicated by the large increase in total domestic assets—in excess of 20 percent growth—for many large lending institutions, mostly large bank holding companies (BHCs). The increasing importance of large lending financial institutions in the United States is indicated in Table D.8 While the number of multibillion-dollar lending institutions with total domestic assets of more than $10 billion declined from 104 in June 2004 to 101 in June 2005, they accounted for 73.8 percent of total assets, 62 percent of total business loans, and 57 percent of small business loans.9 Again, the largest lenders continued to focus on the market for loans under $100,000, especially the business credit card market, accounting for 70 percent of the total number of small loans in June 2005.10 (Table D) In the market for loans between $100,000 and $1 million, the largest lenders remained relatively passive or, at least, not aggressive. Their share in this market remained almost unchanged, in both amount and number of loans, in spite of the increased asset share, from 72.8 percent in June 2004 to 73.8 percent in June 2005. This poses the question of whether very large banks are moving away from higher-cost small business lending to lower-cost micro business lending in credit cards and credit lines. It will be important to continue monitoring this development as banking concentration continues. Endnotes 1See U.S. Small Business Administration, Office of Advocacy, Financing Patterns of Small Firms: Findings from the 1998 Survey of Small Business Finances, 2003, Chart 5, p.14. www.sba.gov/advo/stats/rbssbf_98.pdf. 2 The Bank of the Federated States of Micronesia (FSM), the only non-U.S. FDIC-insured bank, is also included. FSM is a former United Nations Trust Territory administered by the United States until the 1980s. 3 As discussed in the introduction section, depository institutions covered in this year’s study have been expanded to include federal and state savings banks and savings and loans associations. Lending institutions covered thus include commercial banks (charter types 7 and 8), federal savings banks (charter types 9 through 12), and savings and loans associations (charter types 1 through 4). Credit unions, however, are not included. 4 As compared with $522 billion in June 2004 for commercial banks. See U.S. Small Business Administration, Office of Advocacy, Small Business and Micro Business Lending in the United States for Data Years 2003-2004, 2005, www.sba.gov/advo/research/lending.html. 5 Again, for comparison, total business loans for all reporting commercial banks was $1.38 trillion in June 2004. See Small Business and Micro Business Lending in the United States for Data Years 2003-2004. 6 Because of continued efforts by major small business credit card issuers to consolidate their data reporting practices. Further complicating the interpretation are the merger and acquisition activities of credit card operations among commercial banks, federal saving banks, and commercial finance companies. 7 By comparison, the number and value of smallest business loans were 13.6 million for $125.3 billion in June 2004. See Small Business and Micro Business Lending in the United States for Data Years 2003-2004. 8 Table D is derived by combining the files for reporting institutions and the consolidated holding companies, which consolidated all members of a holding company. Many noncommercial bank members of the holding companies were not consolidated because of missing linked IDs. The number of lending institutions as of June 2005 was 7,624 (compared with a total of 6,572 for banks in 2004), including 1,575 independent institutions and 4,997 financial holding companies. 9 The comparable numbers for banks and BHCs for June 2004 were 72 banks and/or BHCs for 75 percent of total banking assets. See Small Business and Micro Business Lending in the United States for Data Years 2003-2004, Table D. The importance of C&I loans in the business loan portfolio for giant lending institutions is reflected in the statistics; these lenders accounted for 50 percent of total C&I loans under $100,000 while they only accounted for 20 percent of total smallest nonresidential loans (under $100,0000 as of June 30, 2005).