Banks Get Graded on Small Business Lending

June 27, 2012 at 2:08 pm 1 comment

Ami Kassar, founder of MultiFunding, writes in the NY Times today about a new tool his company has come up with to grade banks on the level of small business lending that they do. Banking Grades allows users to search by county, zip code, address, or bank name to find out how the banks fare when looking at the ratio of their deposits to their small business loans (defined as a loan with a balance of $1 million or less).

Not surprisingly, there has been pushback from the banks about Banking Grade’s methodology and it’s assessment of the big banks. However, when you look at the numbers, it’s hard to argue that the banks are really doing all that they can. Kassar explains,

The four largest banks in the country — Bank of America plus Wells Fargo, JPMorgan Chase and Citibank — control 34.38 percent of all domestic deposits and make 13.8 percent of all small-business loans. If you take the top 50 banks in the country ranked by deposits, they control 67.16 percent of all deposits and make 36.9 percent of all small-business loans.

Meanwhile, the other 7,215 banks in the country control 32.84 percent of all domestic deposits and make 63.10 percent of all small-business loans. Any way you cut it, from my perspective, the big banks are not doing their share.

Elise Brooks, director of communications for the Financial Services Roundtable, says that these conclusions are not fair, and that the full range of services that banks provide to small businesses should be incorporated into the grade. She points to things like financial education and providing network opportunities. But that still wouldn’t make up for the huge disparity between the amount of deposits that they control and the increasingly small amount of lending they are doing.

We have previously blogged about whether or not the capital problem for small businesses is due to availability of capital or if it’s due to a lack of information and access. Clearly, Kassar’s analysis corroborates what we already knew — that capital does exist, but it is not reaching the borrowers who need it. Banking Grades can be a useful tool not only to help entrepreneurs, but also to create a level of accountability with the banks.

The next step would be for Banking Grade to incorporate community-based lenders into their assessment. Adding in credit unions, CDFIs, and other lenders would expand the range of options open to borrowers.


Entry filed under: Banks, CDFI, Credit Unions, Economic Development, Small Business. Tags: , , , , .

An Uneven Economic Recovery: Who is left behind? Small Businesses & Uncertainty– Nothing New Here, Mostly

1 Comment

  • 1. small business loans  |  July 31, 2012 at 11:01 am

    Banking Grades is based on data gathered from quarterly FDIC call reports.its depends upon bank to bank.Every bank regulated by the FDIC is required to submit loan data on a quarterly basis.


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