State’s Small Banks Becoming Big Lenders to Small Businesses

While California’s big banks have captured headlines with pending mergers and promises to do more small-business lending, hundreds of small- and mid-size banks have been quietly giving out more than half the dollars loaned to small businesses in the state.

Last year, small banks loaned $2.4 billion to small businesses, while the eight major California banks loaned $1.9 billion, according to a new study by the federal Small Business Administration. Small-business loans made up the majority of the total business loan portfolio of small- and mid-size banks, compared with a small fraction for big banks, according to the study.

The survey ranked the state’s 395 banks according to how much of their loans went to small businesses in the fiscal year ended June 30. Banks with less than $300 million in assets dominated the top of the list, headed by Redding Bank of Commerce, a small bank in Northern California. Sumitomo Bank of California was the highest-ranked big bank, No. 236 on the list.

The survey indicates how much importance the banks place on lending to small businesses, said Jere Glover, chief counsel for the SBA Office of Advocacy in Washington, which issued the survey.

“If small business is 50% of a company’s loan portfolio, then obviously they’re going to be more friendly, more caring, more concerned about small business than if it’s 10% or zero percent,” he said.

Daryl Sutterfield, vice president in charge of small-business loans at the Redding bank, said independent banks such as his prosper by serving outlying areas or niche markets that large banks often overlook.

Niche marketing enabled Valle de Oro Bank to gain a following among Iraqi grocery and liquor store owners in the Spring Valley area of San Diego County, who then referred others in the community to the bank, said Assistant Vice President Dave Meehan.

The niche that Monterey Park’s Community Thrift & Loan Assn. targets is Latino-owned businesses in Huntington Park, East Los Angeles, South Gate, Compton and South-Central Los Angeles, said A.J. Jamal, the bank’s real estate manager.

Representatives from larger banks said they care every bit as much about small businesses. They said that although big banks gave fewer dollars, they actually made 65% of the total number of small-business loans.

For larger banks--better able to make loans to large developers and multinational corporations, for example--small-business lending would naturally make up a smaller proportion of total business, they said.

But that proportion is growing as small businesses increase in the state, said Kathleen Shilkret, a Wells Fargo Bank spokeswoman. Wells Fargo recently met a $2-billion goal in small-business lending and, as part of its proposed merger with First Interstate Bank, has pledged an additional $25 billion in small-business lending in the next 10 years, Shilkret said.

In the last three years, large banks have been modifying their strict loan approval rules, making it easier for small businesses to get loans, said Dominick Albano, a spokesman for the California Bankers Assn. in San Francisco.

Larger banks are relying more on branch personnel to help make loan decisions and are getting more involved with small businesses by providing business-plan counseling and advice, Albano said.

“Banking has always been a relationship-based business,” Albano said. Large banks “are just replacing some of the things they did before.”

The SBA study used June 1995 “call reports,” quarterly reports filed by financial institutions, to survey the nation’s 10,000 banks. The banks gave out 442,441 small-business loans totaling $164 billion last year--an 8.9% increase over the amount loaned in fiscal 1994, the first year the survey was conducted.

The proportion of small-business loans to total business loans also increased nationwide, from 35% in fiscal 1994 to 65.8% last year. But the largest banks, those with $3 billion and more in assets, made 17.8% of their business loans to small companies, compared with 77.6% for banks with less than $100 million in assets.

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Small-Business Lending

The Small Business Administration annually surveys the nation’s banks, examining the number and dollar amount of business loans of $250,000 or less. The SBA ranks the banks according to their small-business lending compared to total business loans, bank assets and deposits. Smaller banks, with assets of less than $3 billion, consistently rank higher than larger banks.

Top-Rated Banks in State

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Rank Dollars No. of loans 1. Redding Bank of Commerce $69.6 million 916 2. Valle De Oro Bank $12.0 million 362 3. North State National Bank $17.5 million 1,755 4. Six Rivers National Bank $22.2 million 367 5. Capitol Thrift and Loan $28.5 million 53 6. Community Thrift and Loan $11.2 million 232 7. San Joaquin Bank $12.0 million 376 8. Scripps Bank $25.7 million 710 9. Bank of San Bernardino $9.6 million 444 10. California Center Bank $31.9 million 1,020 TOTAL $214.5 million 6,235

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How Larest Banks Fared

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Rank Dollars No. of loans 236. Sumitomo Bank $40.4 million 1,435 238. Wells Fargo Bank $943.8 million 112,259 250. Bank of America $586.0 million 52,733 251. Bank of California $24.4 million 758 255. Bank of the West $31.0 million 1,270 260. First Interstate Bank $104.1 million 10,071 263. Sanwa Bank $35.5 million 1,046 266. Union Bank $155.3 million 3,477 TOTAL $1.9 billion 183,049

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Note: Data are for fiscal year ended June 30, 1995

Source: “Small Business Lending in California,” U.S. Small Business Administration, Office of Advocacy.