As Big Banks Get Bigger, Small Businesses Pay the Price - MultiFunding As Big Banks Get Bigger, Small Businesses Pay the Price - MultiFunding
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As Big Banks Get Bigger, Small Businesses Pay the Price

Over the past few weeks I’ve read many articles about consumer outrage at larger banks driven by increases in debit card fees.  And while I don’t want to diminish the consumers’ cause, I feel that the small business community should be just as outraged by how the big banks have treated them throughout the recession.

Many reporters have called me over the past few weeks, stating that “there isn’t demand for small business loans” and asking me to confirm it. While I don’t have factual evidence about loan demand and nobody does, the facts show that smaller banks are slowly increasing their small business loan portfolios and bigger banks are shedding loans.  It makes it difficult for me to imagine how the smaller banks are somehow finding the demand for loans, while the bigger banks throw up their hands and say “no demand”.

Here are some facts that are indisputable. All information comes from FDIC call reports, and is reported by the banks themselves.

Domestic Deposits held by FDIC regulated banks have skyrocketed over 31% during the recession from $5.7 to $7.5 trillion dollars.  At the beginning of the recession (June 2007) , 80% of all deposits were controlled by 450 banking institutions, and now (June 2011), due to consolidation and mergers, 212 banks across the country control 80 percent of domestic deposits.    While big banks used to average about $10 billion of deposits, now they average over $28 billion, a whopping 179% increase.

What has happened to smaller banks in the meantime?  In 2007 there were 7,410 small banks regulated by the FDIC averaging about $155 million of deposits each.   819 of these banks have disappeared over the last four years, and now the small banks average $229 million of deposits.

So what does this all mean for small business?  Overall, while the banks have enjoyed a 31% increase in deposits, they’ve dumped small business loan balances by 10% from $681 billion to $610 billion. 

Where has the drop come from and how has it happened?

The big banks (all 212 of them who control 80% of domestic deposits), held just shy of $309 billion of small business loans as of June 2011.  So while they held 80% of our deposits, they only held 50% of all small business loans.  In 2007, the big banks (all 450 of them then) held just over $400 billion of small business loans (59% of all outstanding loans).  In summary, while the big banks have gotten dramatically bigger during the recession, they’ve collectively managed to drop their small business loan balances by $91 billion dollars, and reduce their overall market share of small business loans.

While the big banks have been shedding small business loans, the smaller banks have been stepping up to the plate.  In 2011, the smaller banks held $302 billion of small business loans.  In contrast, in 2007 they held $285 billion of loans.  So in tough economic times, the smaller banks have managed to increase their small business loans, partially compensating for the bigger banks.

It’s high time for the country to get a handle on the small business loan situation.  You can start by supporting your local community bank.


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At MultiFunding, we believe that the data that the banks report to the FDIC on a quarterly basis about their outstanding loans of $1,000,000 or less is an excellent barometer of main street lending.  With this statistic, if there is a loan outstanding with a balance of $1,000,000 or less, it counts.  The aggregate number is affected by a number of factors including loans that go bad, loans that are paid now, loans that the bank insists leave, attrition, and new loans.

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