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Smaller banks found more personal and flexible for new biz owners, experts say

Community banks offer friendly small business experience

When a small business owner goes shopping for a loan, it might make sense to start with small, community banks instead of the large national banks that seem to change their names on a regular basis due to the continuing merger trend in the banking industry.

Experts say that community banks may present the best opportunity for financing for small companies. While they may offer fewer products than the big banks, they are also more personal and flexible.

There are more than 5,000 community banks in the U.S., including 369 in Mississippi. To get a list of community banks in Mississippi, contact the Independent Bankers Association of American or visit the association’s Web site at www.ibaa.org and click on “Community Banks and Surcharge-Free ATMs Near You.”

Information on banks friendly to small businesses can also be obtained at local offices of the Small Business Administration (SBA) and at the SBA Web site www.sba.gov.

The SBA’s Office of Advocacy says that small business lending increased in 1998, but at a much slower pace than lending to large firms.

“While the total dollar volume of larger business loans ($1 million or more) increased by 13% in 1998, small business loans of less than $1 million increased only 6.3%,” states the SBA report Small Business Lending in the United States, 1998. “Compared with the dollar increase, the number of small business loans grew more rapidly-by 16.7%. Most of the growth was in the smallest loans under $100,000, where the dollar volume increased the least. Thus, the average very small business loan was even smaller in 1998, probably because of a boom in the use of business credit cards and lines of credit offered by banks using credit scoring models.

The fact that more loans and loan dollars are going into small business lending is some good news, but small business lending is not keeping pace, said the SBA’s chief counsel for advocacy Jere W. Glover. “We encourage small businesses to look at this report as one indicator of the banks most likely to lend to them. And we are still watching the trend toward bank consolidation carefully to see whether small businesses overall share of bank lending will continue to fall.”

For the first time, in addition to data from call reports that banks file with bank regulatory agencies, the 1999 lending reports use new data gathered under the revised Community Reinvestment Act (CRA) regulations. Call reports cover the stock of loans outstanding from all banks as of June 30, 1998, classified by the location of the bank headquarters.

CRA data reflect the flow of loans over the entire 1997 calendar year, classified by the borrower’s location. CRA reports cover only large banks – those with more than $250 million in assets or members of BHCs with more than $1 billion in assets. CRA data show many states benefiting from small firm lending by banks headquartered in other states.

The SBA says bank consolidations continue to be a factor in small business lending. Over the last three years, the number of commercial banks filing call reports has declined at a rate of almost 400 banks per year-from 10,149 in 1995 to 8,966 in 1998. Virtually all of the decline was in the very smallest banks with less than $100 million in assets.

The small business lending emphasis of banks of different sizes also changed in 1998, according to the SBA. The largest banks increased their small business lending much more than small banks, in part by promoting more small business credit cards and small lines of credit. However, their assets and total business lending increased even more, resulting in a declining ratio of small business loans to total assets.

One development that can help decrease the paperwork attached to applying for a SBA-backed loan is called SBA Express. Qualified applicants get a loan within 36 hours to borrow up to $150,000 without going through the standard SBA application process. But since the loans are guaranteed at only 50% of their face value, not all banks have yet to sign on to the program.

Contact a local SBA office or visit the SBA Web site to get information on active lenders in your area.

Contact MBJ staff writer Becky Gillette at mullein@datasync.com.

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