Banks lend significantly more to small businesses than is captured by commonly used proxies, according to a major FDIC study released today. In 2015, the agency found, small business commercial and industrial lending by banks was understated by 12 percent, or $37 billion — while small business C&I loans by small banks (which it defined as banks with less than $10 billion in assets) were understated by 29 percent. Community banks were especially important in small business lending, holding 42 percent of small business loans but just 13 percent of all industry assets.
Drawing on survey responses from about 1,200 banks, the report dug beyond the measure of C&I loans of $1 million or less that is often used as a proxy for small business loans. It found that a substantial share of C&I loans over this threshold go to businesses generally understood to be small and that the measure does not capture business loans secured by residential real estate.
The survey also examined bankers’ views about their competitors. Most banks identified other banks in their local markets as frequent competitors, and more than half said that a credit union fit that label. Nearly half of large banks identified nonbank fintech firms as a frequent competitor, while less than 10 percent of small banks did. However, when asked to identify their single top competitor, nearly all named a fellow bank.
Large banks were more likely to accept business loan applications via phone, on-site visits or online than smaller banks. Smaller banks emphasized ability to talk to someone, customer referrals and community involvement as among their top sources of new loan relationships, while large banks focused on professional referrals, extensive branch networks and marketing initiatives to existing customers.
