Grading Banks on Their Small-Business Lending - NYTimes.com

On any given day at MultiFunding, I talk with a dozen or so bankers. As we work together to close loans, they demand precise information as they try to reach lending decisions. After all, precise information is what banking is all about.

When it comes to trying to figure out which banks are lending to small businesses, however, the conversation becomes a lot less precise. A lot of confusion arises from a lack of a clear definition of what constitutes a small-business loan (an issue I have blogged about previously). That?s why my company recently introduced a Web site called bankinggrades.com as a tool to help identify banks that are actively lending to small businesses.

We give every bank in the country a grade for their small-business lending activity based on the ratio of their small-business loan balances to their domestic deposits ? the more they lend, the higher their grades. Access to the site is free, and it?s intended to be a service to help small-business owners and entrepreneurs get to the finish line faster. My advice to those looking for a loan: start with the best-ranked banks in your community and work your way down the list.

In compiling our rankings, we define a small-business loan as any loan with a balance of $1 million or less, and we use data from the Federal Deposit Insurance Corporation (the latest is from March 31) that the banks self-report to the government each quarter. We think this is the fairest indicator of small-business lending in the market.

But not everyone agrees. In a recent article in The Huffington Post, Elise Brooks, director of communications for the Financial Services Roundtable, an association that represents the nation?s largest banks, insurance companies, securities firms and other financial institutions, criticized our formula. She suggests that commitment to small-business owners ?goes beyond a simple loans-to-deposit ratio? to include things like ?offering financial education? and ?networking opportunities.? (I?d be curious to hear what readers think: How valuable are these kinds of services?)

And an article that ran last week in The Baltimore Sun introduced BankingGrades and reported that many big banks criticize our formula, arguing that it is biased against banks that could never get a good grade because of the sheer size of their deposits.

As you would expect, I disagree with that point of view. Our formula is simple and straightforward: Bank of America, the largest bank in the country, doesn?t grade well on BankingGrades because it controls 11.06 percent of all domestic deposits and only makes 3.94 percent of all small-business loans.

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.

Access to capital for small-business owners is a critical component of economic recovery, and we think bankinggrades.com will increase transparency and clarity about who is doing what to help small businesses. What do you think?

Ami Kassar founded MultiFunding, which is based near Philadelphia and helps small businesses find the right sources of financing for their companies.

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