We have the most luck with small-business loans when we go to community banks where the banking officer and the credit officer sit in the same office together and the banking officer working with the small business takes their case to the credit committee and pitches their loan. And there's little room for error and there is little room for confusion in the process.
Yet Bank of America, as an example, is hiring 1,000 small-business bankers. Doesn't that mean they will be lending more to small businesses?
What does that mean? Are they there to sell life insurance and cash management systems or get new checking accounts from the small businesses? Or are they there to help small businesses get loans? I'd like to know from BofA how they're empowering those 1,000 bankers to make decisions and to be able to help the small businesses. I'd like to know from BofA when they're sending those bankers out onto the street, what kind of small businesses are they targeting? Are they targeting true small businesses? Or are they targeting businesses with $5 million to $20 million worth of revenue?
Which big bank has the worst record of small-business lending?
Citibank has $9 billion of small-business loans on portfolio. Compare that to Wells and Chase and BofA, where small-business loans are in the mid-20s and higher.
How do credit unions and alternative lenders fit into the discussion?
Credit unions can be a good place for a small business to get a loan. We don't include them in Banking Grades because they don't issue the same reports as the FDIC-insured banks do. Alternative lenders add an additional element to what makes small-business lending so difficult to understand because they are thriving and strong since the recession and since more and more small businesses have had to go to them. They aren't regulated. There are no reports out that tell us how much they are lending or at what rates they are lending at. Our hypothesis is that the alternative lenders have been and continue to become a bigger and bigger piece of the overall small-business lending puzzle.
How do you think big banks can improve?
First of all, empower their folks in the branches and educate them to make decisions to help small businesses and start lending to them. Start issuing reports to the public and to the government that accurately reflect what they're doing to lend to small businesses.
I think it's important to note that the top 40 banks or so in the country have about 45% or 50% of the bank branches in the country, and so the greatest likelihood is that a small-business owner is going to walk into one of these branches. That's why I think this issue is so important.
-- Written by Laurie Kulikowski in New York.
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