Small lenders more likely to use 'relationship' factors: FDIC survey

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WASHINGTON — Community banks are more likely to use their strengths as "relationship" lenders when making small-business loans, whereas large banks are more "transactional," according to results from a Federal Deposit Insurance Corp. survey.

The survey on small-business lending, which included responses from 1,200 banks, found that banks with less than $10 billion in assets were more prone than larger lenders to go beyond using standard factors in evaluating borrowers. Additional criteria include the educational background and industry experience of a business owner.

In contrast, large banks depend more on applicants' credit scores, and are more than 70 times likely than smaller banks to offer standardized small-business loan products, the FDIC said in the survey released Monday.

“Despite holding only 13% of banking industry assets, our data shows that community banks hold 42% of small business loans,” FDIC Chairman Jelena McWilliams said in a press release. “In light of ongoing consolidation in the banking industry, banks' ability to meet the credit needs of this important sector is of vital interest to the FDIC.”

Banks surveyed also said they view their competition as any bank of similar size in their community.

Competitors viewed small banks as being more than three times likely to have an advantage in customer service and nearly four times likely at making loans faster, compared to how competitors viewed large banks.

The bigger banks, however, were seen as having a pricing and convenience advantage because of their larger branch network, respondents said.

Overall, “very few” banks of all sizes said they accepted small-business loan applications online.

The FDIC conducted the survey over a two-year span that ended in 2017.

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