MultiFunding Releases Its Study About How Bank Size Impacts Small Business Lending

Findings prove that as banks get bigger and more bureaucratic, their small business loan balances decrease.

There are a handful of pivotal moments in everyone’s life and career.  For a small business owner or entrepreneur a critical one is when they sit down with a loan officer at their bank to discuss their plans and see how they might get funded.  In that meeting dreams are fulfilled or shattered, jobs are created or destroyed, and great companies survive or die.  Perceptions are embedded in the mind of the small business owner that may or may not have anything to do with reality.

For many small business owners or entrepreneurs across America, they walk into the bank branch across the street from them.  Perhaps their family has been banking there for years.  While this might be a random act for them, our data and research show that the type of bank they pick could have a dramatic effect on their experience and their ultimate chances of obtaining financing.

There are just over 93,000 bank branches across America as of November 2011.  Fifty-one percent of them are owned by 62 national banks that have  branches in six or more states.  Fourteen percent of the branches are owned by 437 regional banks that have branches in between two and five states.  Finally, thirty five percent of the branches are owned by 6,280 state banks that only have branches in one state.

 What does this mean for small business owners?  Depending on which branch (and bank) they go to could have a material impact on getting a loan.  The average branch for a large national bank manages a portfolio of $4.6 million of small business loans.   The average branch for a regional bank manages a portfolio of $6.8 million of small business loans.  Finally, the average branch for a state bank manages a portfolio of $9.1 million of small business loans.   All loan data are based on data reported to the FDIC as of 9/30/2011.

If the small business owner is lucky and smart enough to walk into a state bank, that bank holds almost double the small business loans of the branch of a national bank.  They’re simply more equipped to handle small business loans.  Unfortunately, because the large national banks have 51 percent of all the branches across the country, there is a good chance the small business owner is starting in the wrong place.

We believe that this research further validates our argument that the bigger and more bureaucratic banks get, the less equipped they are to handle small business loans.   The data show that as banks get bigger, they’re handling fewer small business loans.  The large national banks are using 4.41% of their domestic deposits, on average, to make small business loans.  The regional banks use 10.98% of their domestic deposits, on average, to make small business loans.  The state players use 14.46% of their domestic deposits, on average, to make small business loans.

In our opinion, this study provides more evidence that local community oriented banks are best equipped to meet the needs of small business owners.  We hope that small business owners across America won’t be tempted by the “big brand” when exploring their loan options.  The stakes are too high – for them – and for all of us.