We have covered credit availability for small businesses lately focusing mainly on the big banks as the source of capital. What about smaller banks with assets under $1 billion? According to a report out this this week by the San Francisco Federal Reserve Bank, roughly 15 percent of small businesses obtain access to credit through a small bank. Further, an earlier study which surveyed the finances of small businesses found that, excluding credit cart loans, about four out of ten small businesses use credit lines or loans as their primary utilization of bank credit. Moreover, 41 percent of all of these credit lines under $1 million are held by small banks. It is safe to assume that the majority of loans that size go to small businesses. Larger loans are most likely provided by larger banks. The FRBSF continues, “These estimates may understate the importance of small bank credit for the economy.

Relatively young businesses generate a large share of new jobs. Small banks may have a comparative advantage over large banks in lending to such businesses. Newly established businesses may have few assets or assets that are difficult to value as collateral. Lender underwriting and monitoring may have to rely heavily on information about the creditworthiness of the business owners—their “character,” skills, and other personal attributes. Small banks may be able to analyze and use this kind of subjective information more effectively than large banks because fewer layers of management are involved in lending decisions…”