Mega banks make fewer micro loans, study says

What the prospects are for the small-business borrower in a landscape of increasingly large banks depends on whom you ask.

Some see a market of small-business owners unable to get the attention of everlarger banks, but others contend large banks must pay more attention to the trillion-dollar,

LARGE INSTITUTIONS INCREASINGLY DOMINATE MARKET

Between 1984 and 2004, the number of banks in the United States dipped from 15,101 to 7,842, mostly because of mergers and acquisitions.

That is a trend with potentially serious consequences for small enterprises seeking loans, said Paul Merski, chief economist of the Independent Community Bankers of America.

A study of the country's 50 largest banks released by the U.S. Small Business Administration (SBA) in March found that the larger a bank is the fewer small-business loans it makes.

The study showed that between 1997 and 2002 the average total assets of those banks soared by $1 trillion, while their small business loan holdings fell by about $100 million.

Smaller banks have traditionally been more receptive to smallbusiness borrowers, Merski said. "The local banker makes a much larger share of small-business loans."

Community banks make 42 percent Of the small-business loans under $1 million and 60 percent of the loans under $100,000, he noted. "This is huge, since they have 10 or 12 of the total bank assets overall."

Where a local community banker might be willing to extend a loan based on his personal knowledge of the borrower and the local business market, larger banks by necessity must use set formulas that may end up excluding more people.

However, he said, he was unsure if this has had any effect on the overall loan market a sentiment echoed by SBA officials.

According to the SBA, small-business loans outstanding in 2002, the last year for which figures were available, totaled $1.32 trillion, down 1.3 percent from the previous year. The agency attributed the decline mostly to a drop in loans exceeding $1 million, which fell 4.8 percent.

While overall loans are growing much slower in the 1990s, it's impossible to say how much of that is due to the state of the economy in general and how much is due to bank consolidation, said SBA senior economist Charles Ou.

Also, large banks show different lending patterns. Smaller banks that are simply acquired by larger ones tend to keep up the same level of small-business lending as before, while those that are formally merged with larger banks do less, he said.

OVERLAPPING BUSINESS

The agency has noticed that the largest banks, the ones that completely dominate the markets they're in, tend to make more smallbusiness loans than their less dominant counterparts.

Larger banks with branches in Westchester County all said they are working to increase their share of the smallbusiness lending.

Sterling Kozlowski, head of small-business; operations for HSBC, said his bank was the top provider of SBA-guaranteed loans in New York state last year.

The bank tries to provide quick turnaround on small-business loan applications because customers "value a quick response."

Mario Ruggiero, Bank of America's small-business consumer sales manager for the metro New York area, said the bank has $2.5 million in outstanding small-business loans of $250,000 or less in the region. "It's extremely important. It's something we focus on."

Locally, Martin Berger, chairman and chief executive officer of City & Suburban Federal Savings in Yonkers, said smaller and larger banks are increasingly getting in each other's business.

Larger banks are becoming a larger presence in local mortgage markets, said Berger. His bank's involvement with business financing is mostly in commercial mortgages. However, larger businesses are increasingly turning to local banks for financing. "There is some overlap," he said.

Berger agreed that business owners value a quick response to loan applications, and said small, local banks are best equipped to do that because they have fewer layers of management. That can be important in real estate transactions, many of which are timesensitive, he said.

Marsha Gordon, president and chief executive officer of The Business Council of Westchester, said she hasn't heard any concern from her membership about the issue. "I think banks, as a whole, need to work with all businesses," she said.