When it comes to getting a small business loan, does it matter whether the bank you borrow from is a small bank or a large bank? The New York Times reports that larger banks are making fewer SBA-backed loans to small business, leaving the market open to smaller community banks. But do smaller banks do more for small business?
“I’d rather deposit my money into a bank that is more likely to take that money and lend it out to other small businesses that need it than to a large multinational bureaucracy that is far less likely to make loans to small businesses that help the economy.”
But do community banks really contribute that much more to their local economies than larger banks with dozens of branches in a single city? Chase, for one, provides grants and investments in communities each year. So does Bank of America. And with deeper pockets than any regional bank could ever have, is it fair to criticize larger banks for not understanding small businesses simply because they’re not small themselves?
Who’s Willing to Lend?
MultiFunding, which advises small businesses on the best loan for their situations, recently came out with a bank lending grader tool. Using the tool, you can find out how small-business friendly different banks are. The tool rates 6,800 banks in the United States. The tool calculates the rating based on quarterly FDIC call reports, as well as the total small-business loan balance for each bank divided by its total domestic deposits.
It assigns each bank a grade (A, B, C, D or F). Most banks (82.5%) get a grade of A or B, meaning that they use at least 10% or more of their deposits to make small business loans. About 1187 of the banks use less than 10% of their deposits to make small business loans — they got ratings from C through F. Figures are based on data as of June 30, 2011. Kassar says:
“The tool will help small business owners find banks in their areas that are most likely to make small business loans. This way they don’t have to waste time at banks that say they’re lending – but aren’t doing their fair share.”
MultiFunding’s tool does not give insight into how much a bank gives back to a particular local community.
How Should You Rate A Bank Lender?
MultiFunding’s tool is a place to start. The information is valuable and takes only a minute to look up.
But Rohit Arora, CEO of Biz2Credit, says there are other ways to judge a bank when looking for a small business loan. He notes these key questions you should ask when you’re considering a loan:
- What is the bank’s underwriting criteria? (credit scores, number of years in business, etc.)
- What industries does it fund?
- What age of business does it want?
- Does the bank make SBA loans or is it a non-SBA lender?
- Will the bank fund startup loans?
The key is to do your homework. Look at a variety of resources out there. The SBA website gives you a checklist to determine what sort of loans or financing you qualify for. If you want assistance finding a loan, consider working with a company like MultiFunding, Biz2Credit or Intuit Loan Finder to work with a loan expert. And there’s plenty of content online, such as what’s found on Paychex’s brand new Build My Biz site.
Bank Photo via Shutterstock