I was recently looking at the most current FDIC quarterly report and noticed something that had not caught my attention before. Specifically, the FDIC has a report that classifies banks by the predominate class of assets it carries.
This “labeling” may not be new to the FDIC reports, but understanding the different types of banks the FDIC has classified by asset is valuable to a small business owner looking for a loan.
Remember, as you think of banks, their balance sheet looks the exact opposite of a small business’ balance sheet. Loans for a small business are a liability, but loans for a bank are an asset. It is often the case that a bank may make all of these classes of loans, but have a higher concentration of one kind of loan asset that causes it to be officially or unofficially classified as a specialty bank.
Here are the asset classes the report shows and my explanation of each type:
Credit card banks
These are banks that have most of their loans in consumer credit cards. We have all heard the names and received mail solicitations from these banks. Most of them are headquartered in states that have very liberal credit card usury laws. South Dakota is an example of such a state. With the recent passage of the new federal laws protecting consumers (not businesses) from predatory credit card practices, we may see many of these banks change their primary model of doing business.
Usually larger money center banks, these banks specialize in cross-border transactions. They may make large loans to foreign banks, businesses, and even sovereign governments. They are not thought of as small business lending institutions.
Ag banks come in all sizes with most of them serving farming and ranching communities. There are a few special ag lending banks that are may serve the agricultural lending needs of an entire state. As one might expect, most of their loans are agriculturally related. Small businesses located in rural farming communities may be able to borrow from ag banks since these banks most commonly serve the entire community’s needs, not just agriculture.
These are the banks that have staffs that understand the needs of businesses. Some of them may be regional banks (with total assets greater than $1 billion) and some may be community banks (with total assets less than $1 billion). If you ask a banker what percentage of their total loans are commercial and industrial (in the industry called C&I), you will get a feeling of how serious they are about commercial lending. The higher the ratio, the more serious the lender is about making loans to businesses. These banks also make consumer loans and other types of loans as well, so this kind of bank is often the hardest to find among banks in your community.