Small business (SMB) lending is big business for community banks, which are a popular destination for small business borrowers, thanks to strong approval rates on loan applications. But new analysis from the Federal Reserve has identified a reversal in community banks’ position in the small business lending market.
The “Community Banking in the 21st Century” report, released by the Federal Reserve and the Conference of State Bank Supervisors last week, surveyed more than 600 community banks across the country and quizzed professionals at these financial institutions (FIs) about their approach to small business lending.
According to the report, small business lending at community banks dropped by 2.2 percent in 2016 down to $269 billion. That decline is contrasted by the 5.1 percent increase in SMB lending among large banks (FIs with more than $10 billion in assets) between 2015 and 2016 — and also by the fact that previous years saw community banks with higher loan origination volumes than large banks, researchers noted.
Small business lending also made up a smaller portion of community banks’ overall portfolios, from 16.6 percent in 2015 to 15.9 percent in 2016, due in part to a surge in commercial real estate lending activity.continue reading »