The number of banks and lending institutions that deal with small business and small farm lending shrank in the last year, likely because of mergers and acquisitions, but loan originations and loan sizes increased, according to data put forth by the Federal Financial Institutions Examination Council (FFIEC).
The FFEIC’s analysis was based on data collected by council members the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), which are required to collect data from federal financial institutions under the Community Reinvestment Act (CRA).
The act, intended to encourage federally insured commercial banks and savings associations to help meet the credit needs of the local communities in which they are chartered, requires firms with $1 billion or more in assets to report data on their small business and small farm lending and community development lending. The mandatory reporting threshold adjusts annually based on changes to the Consumer Price Index, and for 2015, the threshold was $1.221 billion.
In the last year, 751 lenders reported data about originations and purchases of small loans — those with original amounts of $1 million or less — to businesses and farms. That’s a 2 percent decrease from the number of lenders who reported data in 2014. This may reflect a 0.4 percent threshold increase between 2014 and 2015.
During 2015, banks and thrifts with assets of $1.221 billion or more accounted for more than 95 percent of reported small business loan originations. The very largest institutions — 105 reporters with assets of $10 billion or more — accounted for about 69 percent of CRA-reported small business loans originated in 2015.
In the aggregate, about 6.1 million small business loan originations and purchases totaling $228 billion were reported in 2015, with the total number of loans increasing 8.5 percent and the number of loans originated increasing 7.7 percent over 2014. Many reporting institutions attributed the increase to mergers and acquisitions.
The dollar amount of originations also increased by about 5.6 percent year over year. Small farm loans saw a 2 percent increase in number and a 5 percent increase in the dollar amount of originations from 2014 to 2015.
For small business loans, the maximum loan size reported is $1 million; for small farm loans, the maximum is $500,000. Measured by number of loan originations, 93 percent of the small business loans and about 77 percent of the small farm loans originated in 2015 were for amounts under $100,000. Measured in dollar amount of loans, the distribution differs; about 35 percent of the small business loan dollars and about 27 percent of the small farm loan dollars were extended through loans of less than $100,000.
More than 52 percent of the number of reported small-business loan originations and 61 percent of the number of reported small-farm loan originations were extended to firms with $1 million or less in revenue.
Analysis of the CRA data shows that small business loans are heavily concentrated in cities and their suburban outliers, as are the bulk of the U.S. population and the number of businesses. The majority of small farm loans were extended to farms located in rural areas.
Lending activity in upper-income areas exceeded the share of businesses and the population of these areas last year. For example, low-income Census tracts include about 6 percent of the population and businesses, and accounted for nearly 5 percent of the number and about 6 percent of the total dollar amount of small business loans in 2015. Upper-income Census tracts include about 28 percent of the population and about 31 percent of the businesses, and had about 38 percent of the number and 36 percent of the total dollar amount of small business loans in 2015. Each income category's share of the number and dollar amount of loans remained about the same in 2015 as in 2014.
Finally, lenders reported more than $87 billion in community development loans in 2015, a 16 percent increase over 2014, according to the FFEIC’s analysis.
Although this data provides useful information about local community lending — including information on loans originated or purchased, loan size, and whether a loan is extended to a borrower with $1 million or less in annual revenue — the FFEIC noted that it’s not considered as comprehensive as the data reported on home mortgage lending under the Home Mortgage Disclosure Act (HMDA). The data falls short because it does not reflect loan applications denied, demographic information about applicants or individual loan terms.
The CRA data has other limitations, as the FFIEC noted that it’s challenging to interpret. For example, lending institutions are asked to report the geographic location of the loan. If the proceeds of a small business loan are used in more than one location, the institution can record the loan location as either the address of the borrower’s business headquarters or the location where the greatest portion of the proceeds are applied, as indicated by the borrower. However, these locations may have different socioeconomic characteristics.
CRA data also does not reflect the amount or nature of the overall demand for credit in a geographic area, and differences in loan volume across areas may reflect differences in local credit demand, the FFIEC cautioned. In addition, the CRA small business and small farm lending data reported each year cover only a portion of the credit extended to small businesses and small farms.