The nation's largest banks have been gaining market share in small- business lending, and the smallest have been losing ground.
Typical small-business portfolios rose at both sorts of bank in the 12 months through June 30. But though the number of very small banks dropped, the number of giants rose.
"A lot of other big banks have gone hot and cold on small business," said Sandy Maltby, executive vice president of KeyCorp Small Business Services, but "right now they are all romancing small business."
Overall, small-business bank loans increased 5.5%, to $336.6 billion on June 30, according to the Federal Deposit Insurance Corp.
The number of giant banks - those with $10 billion or more of assets - rose 7.4% in the 12 months, to 73. And their small-business holdings rose faster; market share jumped from 22.6% to 25.1%.
Meanwhile the number of banks in the under-$100 million class dropped 7.4%, to 6,469, and their market share slid from 16% to 14%.
There were 3,147 banks in the middle class. Their market share was unchanged.
The smallest banks, though there were fewer of them, managed to increase their average small-business loan portfolio by 2.6%. But the biggest banks did so faster - by 9.4%.
The market shift came as large banks awakened to the profit potential in small-business lending and revamped their products and adapted new technology to focus on entrepreneurs.
"The large banks have really been pushing small business, both inside and outside their geographic areas," said Cynthia Glassman, managing director of Furash & Co.
"There's an endless amount of prospecting potential in the small- business market," said Marc Angle, senior vice president of the business banking department at SouthTrust Bank of Alabama.
Many of the largest lenders to small-business owners centralized their underwriting, simplified their loan applications, and adopted credit- scoring systems.
The large banks often use direct mail or telephone solicitations, 24- hour lending decisions, and competitive pricing. Community banks traditionally emphasize personal service.
"The community bank's challenge is how to handle the increasingly sophisticated needs of small business, when they don't have the size and scope to provide convenience," Ms. Maltby said.
But Clark Hungerford, president and chief executive of $38 million- asset First Peoples Bank in Pine Mountain, Ga., said community banks can better serve small-businesses owners.
"Rather than deal with two or three levels of bureaucracy, they want to go straight to the decision makers at the bank," said Mr. Hungerford, whose bank was formed after First Union Corp. bought the only community bank in the resort town of 900.
Nevertheless, Ms. Glassman said community banks can hold on to their market share if they survey lost customers to see if they wanted easier service, lower prices, or more products.
"A subset of small-business owners will continue to want the more personal touch they usually can only get from a community bank," she said.
Community banks have a distinct advantage in lending to local businesses, said Phil Jones, president and chief executive of $98 million- asset Citizens Bank of Americus in Americus, Ga.
Citizens competes with Wachovia Corp. and Synovus Financial Corp. in its home market, and Mr. Jones said the bank's total loan portfolio has grown 18% in the year ended June 30.
"We know the customer, we know their business, and we know their family," Mr. Jones said. "You need that kind of information in small- business lending."
