The following analysis of nationwide summary statistics is based on data compiled by the Federal Financial Institutions Examination Council (FFIEC) for institutions reporting under the Community Reinvestment Act (CRA) regulations.
The CRA is intended to encourage federally insured commercial banks and savings associations to help meet the credit needs of the local communities in which they are chartered. The CRA regulations require larger commercial banks and savings associations to report data on their small business, small farm, and community development lending. The institutions subject to these requirements generally include independent institutions with total assets of $250 million or more and institutions of any size if owned by a holding company that has assets of $1 billion or more. Under the CRA regulations, small business loans are loans of $1 million or less; small farm loans are loans of $500,000 or less. The small business and small farm lending data, when coupled with information reported about the geographic locations that constitute each reporting institution's local CRA assessment area(s), make it possible to better evaluate the performance of reporting institutions under the CRA lending test.1
The small business and small farm lending data reported under the CRA regulations differ from the data reported on home mortgage lending under the Home Mortgage Disclosure Act (HMDA) in several respects. Unlike the HMDA data, the CRA data include information only on loans originated or purchased, not on applications that are denied by the institution or withdrawn by the applicant. In addition, the CRA data do not include information about applicant income, sex, or racial or ethnic background, although the CRA data do indicate whether a loan is extended to a borrower with annual revenues of $1 million or less. Finally, the CRA data are not reported application-by-application, as HMDA data are, but rather are aggregated into three loan-size categories and then reported at the census tract level.
CRA data are a valuable tool for many different types of analyses. At the same time, the analysis of CRA data poses challenges. For example, lending institutions are asked to report the geographic location of the small business or small farm receiving the loan. However, the borrower may have used those funds to support business activities in other locations. Thus, assessment of the data may categorize a loan by the characteristics of the reported geography (typically a census tract) even though the funds are used to support the activities of a firm's offices in a location with different characteristics.
While CRA data provide information on extensions of credit in a geographic area, they do not indicate the amount or nature of the overall demand for credit there. Caution should be used in drawing conclusions from analyses using only CRA data, as differences in local loan volume may reflect differences in local demand, among other things. Indeed, CRA performance assessments by the supervisory agencies focus on evaluating the volume and distribution of lending in the context of local credit needs.
General Description of the 2003 CRA Data
A total of 2,103 lenders reported data on small business and small farm lending in 2003, including 1,635 commercial banks and 468 savings associations (table 1). Most of the reporting institutions (75 percent) had assets under $1 billion, including 12 percent (256 institutions) that had assets under $250 million (derived from table 3) and are required to report data because they are owned by a holding company that has assets of $1 billion or more. Compared with 2002, the number of reporters has slightly increased (up 6 percent).
Reporting institutions' small business and small farm lending is a significant portion of total small business and small farm lending by commercial banks and savings associations. Analysis of Call Report data on small loans to businesses and farms indicates that CRA reporters account for about 91 percent of the small business loans outstanding measured by number of loans (77 percent measured by dollars) and 33 percent of the small farm loans outstanding measured by number of loans (39 percent measured by dollars) extended by all commercial banks and savings associations (table 1).
In the aggregate, about 8 million small business loans, totaling $279 billion, and about 289,000 small farm loans, totaling $17 billion, were reported having been originated or purchased in 2003 (table 2). Unlike home mortgage lending, a well developed secondary market for small business loans does not exist, and the CRA data reflect this.2 Most reported small business and small farm loans were originations; about 2 percent of the small business loans and less than 1 percent of the small farm loans were reported as purchases from another institution (derived from table 2).
The CRA data provide information about the size of small business and small farm loans. For small business loans, the maximum loan size reported is $1 million; for small farm loans the maximum is $500,000. In 2003, the average small business loan was approximately $34,800, up slightly from $33,500 in 2002. The average small farm loan in 2003 was about $59,900, down from $63,300 in 2002 (derived from table 2). Measured by number of loans, 93 percent of the small business loans and 83 percent of the small farm loans were for amounts under $100,000 (table 2). Measured by dollars, the distribution differs: only 32 percent of the small business loan dollars and 36 percent of the small farm loan dollars were extended through loans of less than $100,000 (table 2).
The CRA data include information on how many of the reported loans were extended to businesses or farms with revenues of $1 million or less. Such firms fall within generally accepted definitions of a small business, although somewhat larger firms are also often categorized as being a small business or small farm. For 2003, 38 percent of the reported small business loans and 89 percent of the small farm loans (measured by number of loans) were extended to firms with revenues of $1 million or less (table 2). The data also show that, on average, loans to firms with revenues under $1 million are larger than loans to larger firms. For example, for 2003, the average business loan to small firms was about $42,250 while the average loan to larger businesses was roughly $30,300 (derived from table 2). This relationship is contrary to expectations and to relationships found in years prior to 2000 when small business loans to small firms were on average about two-thirds the size of loans to larger firms. The change in the pattern reflects a substantial increase in the volume of credit card lending to larger businesses in the past few years. Such loans tend to be for relatively small amounts.
Most of the reported small business loans (about 78 percent measured by number of loans and 92 percent measured by dollars) were either originated or purchased by commercial banks (data not shown). This preponderance of commercial banks in small business lending is consistent with data provided by other sources, including the Federal Reserve's 1987, 1993, and 1998 National Surveys of Small Business Finances, which show that commercial banks are the predominant source of credit for small businesses.3
Larger commercial banks and savings associations (those with assets of $1 billion or more) originated or purchased about 76 percent by dollars of the reported small business loans (table 3). These larger banks and savings associations represent a minority, however, of the institutions reporting such loans. No significant differences between commercial banks and savings associations were observed in this regard; larger institutions did the majority of small business lending within their institutional categories (data not shown). The overall pattern differs for small farm loans, where larger institutions accounted for less than half of the loans. These patterns are little changed from previous years.
Reconciling the Numbers
The 2003 CRA data show a large increase (about 170 percent) over the 2002 data in the total number of small business loans purchased, with nearly all of the increase occurring in loans of $100,000 or less (data not shown in tables). These changes appear to be primarily the consequence of the purchase of small business loan portfolios by two large commercial banks.
The proportion of small business loans extended to smaller firms at 38 percent is down sharply from a high point of 60 percent in 1999, but up from 31 percent in 2002. The overall decline in the share of lending to small firms since 1999 is primarily a consequence of a substantial increase in reported lines of credit, renewals of such lines with larger limits, and credit card lending to larger firms. In addition, the decline reflects a change in the data collection practices of some banks that no longer request revenue-size information from business customers and as a result, no longer report which, if any, small business loans are to small firms.
The Geographic Distribution of Small Business and Small Farm Lending
The availability of information about the geographic location of businesses and farms receiving credit provides an opportunity to examine the distribution of small business and small farm lending across areas grouped by their socio-demographic and economic characteristics. Information on the distribution of businesses and population provide some context within which to view these distributions.
CRA performance assessments include an analysis of the distribution of small business and small farm loans (of all types) across census tracts grouped into four neighborhood income categories: low-, moderate-, middle-, and upper-income.4 Overall, the distribution of the number and the dollar amounts of small business loans across these categories parallels the distribution of population and businesses across these four income groups (table 4.1 and table 4.2 ).5 For example, low-income areas include about 4.6 percent of the population and about 4.2 percent of the businesses, and received about 3.6 percent of the number and about 4.4 percent of the total dollar amount of small business loans.6
Low- and moderate-income areas' shares of the number and dollar amount of loans remained about the same in 2003 as in 2002. The same year-over-year pattern is observed for lending in middle- and upper-income areas.
In the distribution of small business lending reported under the CRA across central city, suburban, and rural areas, small business loans are heavily concentrated in U.S. central city and suburban areas (about 83 percent of the number or dollar amount of all small business loans), as are the bulk of the U.S. population and the number of businesses (table 4.1 and table 4.2 ). In lower-income areas, most small business loans (about 86 percent) occur in central city census tracts; in higher-income areas, small business loans are most frequently made in suburban census tracts. Most small farm loans are made in rural areas regardless of area income (about 71 percent of the number of loans and 70 percent of the dollar amount of such lending) (table 4.3 and table 4.4).
Community Development Lending
In addition to information about small business and small farm lending, institutions covered by the CRA data-reporting requirements also disclose the number and dollar amount of their community development loans. Among the 2,103 institutions reporting in 2003, about 63 percent extended community development loans (derived from table 5 ). For 2003, institutions reported 36,830 community development loans totaling $42.3 billion (table 5 ). The total number of reported community development loans is higher than in 2002, up about 20 percent measured by number of loans and 52 percent by dollars. Rules allowing institutions to report renewals as additional loans may account for some of the increased lending, as may more aggressive outreach activities. However, part of the increase in lending is attributable to underreporting in previous years by several lenders.
As in earlier years, on average, community development loans are much larger ($1.15 million) than the typical small business loan ($34,800) reported in the CRA data. Larger lenders (assets of $1 billion or more) extended the bulk of community development loans.
Tables are in Portable Document Format (PDF).
1.The regulations that implement the CRA provide three performance tests for large retail institutions: a lending test, an investment test, and a service test. The lending test focuses primarily on the geographic distribution of lending, considering the proportion of loans extended within the institution's local community and the distribution of these loans among different types of borrowers and neighborhoods.
2. The one exception is for small business loans guaranteed by the Small Business Administration. See "Report to Congress on Markets for Small Business and Commercial Mortgage Related Securities," Board of Governors of the Federal Reserve System and U.S. Securities and Exchange Commission (September 1996).
3.See Rebel A. Cole, John D. Wolken, and R. Louise Woodburn, "Bank and Nonbank Competition for Small Business Credit: Evidence from the 1987 and 1993 National Surveys of Business Finances," Federal Reserve Bulletin, vol. 82, no. 11 (November 1996), pp. 983-995; and Marianne P. Bitler, Alicia M. Robb, and John D. Wolken, "Financial Services Used by Small Businesses: Evidence from the 1998 Survey of Small Business Finances," Federal Reserve Bulletin, vol. 87, no. 4 (April 2001), pp. 183-206.
4.For purposes of the regulations, a low-income census tract has a median family income that is less than 50 percent of the median family income for the broader area (the metropolitan area containing the tract or the entire non-metropolitan area of the state); a moderate-income tract, 50 percent to less than 80 percent; a middle-income tract, 80 percent to less than 120 percent; and an upper-income tract, 120 percent or more.
5. Beginning with 1998 data, institutions filing CRA data were allowed to report that the census tract location of a firm or farm receiving a loan was unknown. For 2003, 4.9 percent of the reported small business loans by number and 1.2 percent by dollar amount included such a designation.
6. Data on the share of population across census tract income categories is derived from the 2000 Census of Population and Housing (most current available). Data on the share of businesses across census tract income categories is derived from information from Dun and Bradstreet files of businesses. Calculations exclude agricultural-related firms.