Small Business

Report Card on Banks' Small Business Loan Pledges


Two of the biggest banks—Chase and BofA—met their 2010 goals, while Wells Fargo missed its target

Ever since the depths of the credit freeze in 2008, the Obama administration has repeatedly called lending to small businesses critical to create jobs and reduce the unemployment rate, which has remained above 9 percent since May 2009. At the end of 2009, Obama pressured banks, especially institutions that had taken "extraordinary assistance" in the form of government bailouts, to do more to get credit to worthy borrowers. In 2010, three of America's largest banks?—Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo (WFC)—increased their lending to Main Street companies by 16 percent, or a combined $16.5 billion, after pledging to do more to help small businesses recover. All told, their small business loans totaled $117 billion last year. Wells Fargo was the only one of the three to miss its goal: The San Francisco lender increased new loans to small businesses 15 percent, to $14.9 billion, ending the year $1.1 billion shy of its target.

Big Banks' Lending Promises (Loan Amts in Billions)

Wells Fargo

JPMorgan Chase

Bank of America

Borrowers' Revenue:

Less than $20M

Less than $20M

Less than $50M

2009 Lending:

$13.0

$6.0

$81.4

2010 Lending Goal:

$16.0

$10.0

$86.4

Actual 2010 Lending:

$14.9

$10.0

$92.0

Actual Percent Increase:

15%

67%

13%

(In 2009 these same banks returned $95 billion in government capital, plus about $8.8 billion in dividends and other proceeds, according to ProPublica data. Citigroup (C), the country's third-largest bank, which returned the last of its $45 billion in bailout funds last year, set no public small business lending target for 2010.) Loosening Standards

Loan demand is only beginning to recover from the downturn. Banks reported a net increase in demand from businesses with less than $50 million in revenue in January for the first time since 2006, according to the Federal Reserve's most recent quarterly survey of senior loan officers at 57 U.S. banks. At the same time, a handful of banks have been relaxing credit standards for small businesses since the middle of 2010, though at a slower pace than they have loosened credit for larger companies, according to the survey. Policymakers remain concerned about the level of lending to small businesses. "Overall, it's still a very tight situation," Federal Reserve Chairman Ben Bernanke said at an FDIC forum on small business credit on Jan. 13, according to a transcript. "I think things have stopped getting worse and are looking a little better." The same day, the FDIC launched a hotline for small businesses to call with concerns about banks—and received 292 calls through Feb. 3, according to Greg Hernandez, a spokesman for the agency. The Treasury Dept. is also preparing to use a $30 billion fund to provide incentives to community banks to lend. Although Wells Fargo's $14.9 billion in new small business loans fell short of the target Chief Executive John Stumpf expected to meet in 2010, it still represented a healthy 15 percent increase over Wells' 2009 lending—and may signal more to come. "We are just beginning to see what I would hope and believe to be a sustainable pickup in small business loan demand," says Marc Bernstein, executive vice-president for Wells' small business segment. "The reason we fell short of our goal is we did not see the kind of loan demand from solid businesses last year that we had thought we would get."

Credit-Card Tactic

Chase, which launched a new line of small business credit cards under the Ink brand in the fall of 2009, boosted its small business lending by two-thirds in 2010, to more than $10 billion in 2010, from $6 billion the year before. BofA measured lending to midsize businesses as well as small companies. Including loan renewals, that measure increased to $92 billion from $81.4 billion the year before, a jump exceeding the bank's targeted $5 billion increase. The bulk of the increase went to midsize companies with $20 million to $50 million in revenue, according to Robb Hilson, BofA's top small business executive in commercial banking. BofA lent about $18 billion in 2010 to companies with revenue of less than $20 million, up $1.5 billion, or 9 percent over its 2009 level. "It's been tough to lend money the last couple years" because of weak demand from creditworthy businesses, Hilson says. He expects demand among small businesses to pick up as the economy recovers. Positive Shift

At Wells Fargo, bankers noticed that small businesses seeking loans appeared healthier starting around the middle of 2010, Bernstein says. Until that point, many applications came from troubled companies that "already had too much debt and were looking for loans to carry them through," he says. In the second half, that began to shift more toward "businesses that have good cash flow and are looking for credit for opportunities, and it's easy to see how they can pay it back," Bernstein says. He added that Wells is approving "substantially" more applications than a year ago, though he would not be more specific. That change is consistent with a Wells Fargo/Gallup survey to be released Feb. 9 showing significant jumps in small business confidence for the second quarter in a row. Banks have announced plans to hire more small business bankers in anticipation of greater loan demand. Hilson says BofA is making progress on its plan to hire 1,000 small business bankers by early 2012, who will target companies with up to $3 million in revenue, though he declined to say how many have been hired. Chase says in a news release that it has added 500 business bankers since late 2009, and Citi pledged in November to hire 200 by the end of 2011. While Wells Fargo, BofA, and Chase all point to an improving economy driving loan demand in the year ahead, none of them specified how much they plan to lend to small businesses in 2011.


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