Big Banks and Small Businesses

10 Sep 2018

Small businesses contribute to the dynamism and growth of the U.S. economy, Our new research shows how Forum members provide a significant amount of credit to small businesses across America.

Download as a PDF.

 

Small Businesses Are Important to the U.S. Economy

Small businesses contribute to the dynamism and growth of the U.S. economy.  Small businesses employ a large number of Americans.  According to U.S. Census data, 42 million Americans worked for firms with less than 100 employees in 2017. The Forum member institutions provide a significant amount of credit to small businesses across America.

 

Forum members extend significant amounts of credit to small businesses

Our members hold a total of more than $86 billion in loans to small businesses, roughly double the amount extended since 2007.

  • Small business loans are generally defined as those loans with an original amount less than $1 million
  • In 2018, Forum members account for one-quarter of all loans to small businesses
Sources: Federal Reserve data, Assets and Liabilities of Commercial Banks in the United States – H.8, available at https://www.federalreserve.gov/releases/h8/default.htm; FR Y-9C data, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx

 

Forum members hold significant amounts of smaller loans more likely to reach small businesses

Our members hold $54 billion in loans less than $100,000, double the amount extended since 2007.

  • Loans under $100,000 account for more than 60% of all loans made to small businesses by Forum members
  • In 2018, Forum members account for roughly one-third of all business loans under $100,000
Sources: Federal Reserve data, Assets and Liabilities of Commercial Banks in the United States – H.8, available at https://www.federalreserve.gov/releases/h8/default.htm; FR Y-9C data, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx

 

Forum members lend to small businesses across the United States

Forum member small business lending supports entrepreneurship across the nation and in a wide array of communities.

Sources: FFIEC Community Reinvestment Act, available at https://www.ffiec.gov/cra/default.htm, U.S. Census Bureau County Population Totals, available at https://www.census.gov/data/datasets/2017/demo/popest/counties-total.html

 

  • These data reflect originations of small business loans from 2010-2016 by Forum members
  • Small business lending is spread throughout the United States and areas with the highest percentage of small business lending per capita represent a diversity of geographic regions

 

Forum members lend in large and small communities across the United States

One-third of our members’ small business lending is in smaller communities.  Small communities are defined as those U.S. counties with a total population below 500,000 per CRA reporting. While there tends to be more lending in large counties (due to the amount of people and economic activity), Forum members engage in significant lending in thousands of smaller communities.

Source: FFIEC Community Reinvestment Act, available at https://www.ffiec.gov/cra/default.htm

 

Forum members actively support small business lending through a variety of initiatives

Initiatives at Forum members support small businesses in communities across the United States in a way that has a tangible effect on real people’s lives, for example:

 

Despite strong Forum member support for small business lending, aggregate trends are less positive

Aggregate lending to small businesses fell significantly from 2007 to 2011 and is just now returning to previous levels.

Source: FDIC Quarterly Banking Profile, https://www.fdic.gov/bank/analytical/qbp/

 

  • In the aggregate, small business lending is just now returning to levels that were observed in 2007
  • Researchers have explored the reasons for the slowdown in small business lending
  • Regulation is identified as one factor impeding small business lending

 

Recent research points to the impact of regulation on small business lending

Researchers from the National Bureau of Economic Research find that Dodd-Frank (DFA) regulation has impacted small business lending

Source: The impact of the Dodd-Frank Act on Small Business, Michael D. Bordo and John V. Duca, http://www.nber.org/papers/w24501.pdf

 

  • The researchers find that DFA impacts small business lending
  • “By increasing the fixed regulatory compliance requirements needed to make business loans and operate a bank, the DFA disproportionately reduced the incentives for all banks to make very modest loans… ”
  • The researchers focus on small banks, but acknowledge that the impacts are felt across the entire spectrum of bank size

 

Learn More:

The Value and Strength of America’s Largest Financial Institutions

Our institutions support economic growth and a number of steps have led to a more resilient financial sector. Learn more in our briefing slide deck.