On October 25, the Fed Board of Governors, the FDIC and the OCC released the 2017 data on small business, small farm and community development lending reported by commercial banks and savings association as required by the Community Reinvestment Act (CRA).
Commercial banks and savings associations with more than $1.226 billion in total assets were required to collect and report data regarding small business, small farm and community development lending IN 2017. In total, 718 lenders reported data about originations and purchases of small loans (loans with amounts less than $1 million) to businesses and firms, representing a significant share of this lending category.
According to the release, “CRA reporters account for about 72 percent of small business loans outstanding (by dollars) and about 30 percent of small farm loans outstanding (by dollars) at bank and thrift institutions (emphasis added).” Further, these institutions account for 97 percent of the reported number of small business loan originations.
In total, approximately 6.6 million small business loans totaling roughly $242 billion were reported in 2017. Growth in the loans reported was marginal - the number of loans originated to small businesses increased by 1.5 percent, and the dollar amount originated to small businesses increased by one percent. Meanwhile, the number of originations to small farms increased by 13 percent, and the dollar amount originated to small farms increased 3.4 percent.
The release goes on to state that, “measured by number of loan originations, about 93 percent of the small business loans and 80 percent of the small farm loans originated in 2017 were for amounts under $100,000.”
Not surprisingly, “overall, the distribution of the number and the dollar amounts of small business loans across these categories largely parallels the distribution of population and businesses across these four income groups, although lending activity in upper-income areas exceeds the share of businesses and population in such areas.”
Lastly, the release notes that 632 of 718 reporting institutions reported community development lending activity with no net changes in dollar amounts from 2016.
The agencies point out drawing conclusions from the CRA data is challenging for multiple reasons. First, the geographic location of a loan is ambiguous when the proceeds of a small business loan are used in multiple locations. So, the institution can report the loan as the business’ headquarters or the location where the greatest portion of the proceeds were used. If these locations differ in socioeconomic characteristics, drawing implications from the data becomes more difficult.
Secondly, the data provides no information about the demand for credit in a geographic area. Therefore, differences in loan volume may reflect differences in demand rather than supply of credit.
Lastly, small businesses and small farms have other credit options aside from reporting institutions, so CRA data may not provide a complete picture of credit availability in these industries.