Best banks for small business: the nation's 138 top microloan lenders - Directory

Entrepreneur, July, 1996 by Cynthia E. Griffin

KNOWLEDGE IS POWER, and for the second consecutive year, the Small Business Administration's (SBA) Office of Advocacy is giving entrepreneurs a powerful tool to help them obtain loans from commercial banks.

In its just-released Micro Business Lending in the United States, 1995 edition, the Office of Advocacy found that since the 1994 study was released, commercial bank credit to microfirms (defined as companies seeking loans of $100,000 or less) has increased by $2.7 billion.

Jere W. Glover, Chief Counsel for Advocacy at the SBA, attributes the increase to the study and the SBA's LowDoc loan program.

"LowDoc got banks in the habit of making smaller loans and convinced them to change the procedure to make it faster," says Glover. "Also, the fact that there is published information about the amount of loans they are making and where they rank in their state is a competitive incentive for banks to be in this market."

Banks have also become much more serious about courting small businesses, contends Glover, who says he has been visited by a number of banking executives touting their new small-business programs. "Each looked me straight in the eye and said, `Jere, this year it's real.' "

For banks, the need to truly become small-business friendly is powerful, Glover says, because an entrepreneur whose institution doesn't make small-business loans might just move to a more welcoming bank.

The SBA's report, which for the first time provides the number and amount of small-business loans, relies on the call report data filed quarterly by financial institutions.

Glover acknowledges the study has its limitations. One problem is call reports don't provide separate information on SBA-guaranteed lending. This means financial institutions that are active SBA lenders but sell the guaranteed portion of their loans in the secondary market are likely to be underrepresented in the rankings because the call reports contain only information on the unguaranteed portion of their SBA loans.

Some banks may also be making microloans through credit cards, second mortgages or other forms of consumer credit, which again would preclude their small-business activities from appearing in the reports.

Nor do call reports reflect demand conditions. Consequently, a bank with one or fewer branches in a geographic area, or one in a location where few people seek microloans, will appear not to be small-business friendly.

Even with these limitations, however, Glover believes the study can be a valuable tool for an entrepreneur seeking capital. In addition to helping pinpoint friendly banks, he says, the report might help turn around unfriendly ones. "You could go in and talk to a bank and say, `Look, you only made 100 small-business loans. You ought to be making more, and I'm here to help you. Here's my application.' " And that's a powerful tool for an entrepreneur, concludes Glover.

                TOP MICROLOAN LENDERS