This analysis 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 institutions to help meet the credit needs of the local communities in which they are chartered. The regulations that implement the CRA require commercial banks and savings institutions with total assets of approximately $1 billion or more to collect and report data regarding their small business and small farm lending and community development lending. The mandatory reporting threshold adjusts annually based on changes to the Consumer Price Index and in 2009 was $1.109 billion.1
The small business and small farm lending data reported under the CRA regulations provide useful information about such lending, but they are more limited than the data reported on home mortgage lending under the Home Mortgage Disclosure Act (HMDA). For example, the CRA data:
Interpreting the CRA data can be challenging. For example, lending institutions are asked to report the geographic location of the loan. If the proceeds of a small business loan are used in more than one location, the institution can record the loan location as either the address of the borrower’s business headquarters or the location where the greatest portion of the proceeds are applied, as indicated by the borrower. However, these locations may have different socio-demographic and economic characteristics.
Further, although 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 in that area. Consequently, 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. Indeed, CRA performance assessments by the bank and thrift supervisory agencies focus on evaluating the volume and distribution of lending in the context of local credit needs.
General Description of the 2009 CRA Small Business and Small Farm Loan Data
For 2009, a total of 941 lenders reported data about originations and purchases of small business and small farm loans, a 2 percent decrease from the 965 lenders reporting data in 2008 (see Table 1).2 As a consequence of amendments to the CRA regulations, beginning in September 2005, banking institutions with assets below the mandatory reporting threshold (and, beginning in October 2004, savings associations with assets below that threshold) are not required to collect or report data on their small business or small farm lending. However, institutions with assets below the mandatory reporting threshold may voluntarily collect and report such information, and they must report the information if they elect to be evaluated as “large” institutions. Of the 941 institutions reporting 2009 data in 2010, more than 40 percent were not “large” institutions under the applicable regulation and, therefore, reported either voluntarily or because they elected to be evaluated as “large” (see Table 3).
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 institutions. Analysis of data from Consolidated Reports of Condition and Income (Call Reports) and Thrift Financial Reports indicates that loans by CRA reporters represent about 85 percent of the small business loans outstanding measured by number of loans and about 33 percent of the small farm loans outstanding measured by number of loans extended by all commercial banks and savings institutions (see Table 1). During 2009, commercial banks and savings institutions with assets of $1.109 billion or more (as of December 31, 2008) originated or purchased almost 93 percent, by dollars, of the small business loans reported under CRA (see Table 3).
In the aggregate, about 6.2 million small business loans (totaling $206 billion) and about 150,000 small farm loans (totaling $ 11.7 billion) were reported as being originated or purchased in 2009 (see Table 2). The number of small business loans reported in 2009 decreased about 42 percent from the number in 2008, and the dollar amount reported for such loans in 2009 decreased about 30 percent from the dollar amount in 2008. Some reporting institutions consulted stated that there has been a significant reduction in small business credit card activity and reductions in lines of credit. The failure of a small business credit card lender that in previous years reported a large volume of small business loans also contributed to the decrease in small business lending. Most reported small business loans were originations. The percentage of small business loans reported as purchases from another institution increased from 3 percent in 2008 to 25 percent in 2009; almost all the purchase activity in 2009 reflects the purchase of loans by one bank from an affiliated entity (derived from Table 2). Less than 0.5 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. Measured by number of loans, about 92 percent of the small business loans and about 77 percent of the small farm loans originated were for amounts under $100,000 (see Table 2). Measured by dollars, the distribution differs. Almost 32 percent of the small business loan dollars and about 31 percent of the small farm loan dollars were extended through loans of less than $100,000 (see Table 2).
The CRA data also include information on how many of the reported loans were extended to businesses or farms with revenues of $1 million or less. About 35 percent of the number of reported small business loans (about 37 percent measured by dollars) and 77 percent of the number of reported small farm loans (about 73 percent measured by dollars) were extended to firms with revenues of $1 million or less (see Table 2).
Year-to-Year Comparison of Proportion of Small Business Loans to Smaller Firms
The proportion of small business loans extended to smaller firms in 2009 (35 percent measured by number) reflects an increase from the 32 percent extended in 2008. Lending to small firms peaked in 1999 at 60 percent. The longer-term decline in the percentage of small business loans to smaller firms primarily is due to a substantial increase in lending to larger firms through lines of credit and credit cards. The decline also reflects the fact that some banks no longer request revenue-size information from business customers. Therefore, these banks no longer report which, if any, “small business” loans were extended to small businesses.
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 socio-demographic and economic characteristics. Information on the distribution of businesses and population provides 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 income categories: low-, moderate-, middle-, and upper-income.3 Overall, the distribution of the number (see Table 4.1) and the dollar amounts (see Table 4.2) of small business loans across these categories parallels the distribution of population and businesses across these four income groups.4 For example, low-income census tracts include almost 5 percent of the population and almost 4 percent of the businesses, and received about 3 percent of the number and about 4 percent of the total dollar amount of small business loans in 2009.5 Each income category's share of the number and dollar amount of loans remained about the same in 2009 as in 2008.
Analysis of the CRA data shows that small business loans are heavily concentrated in U.S. principal city and suburban areas (about 86 percent measured by number and almost 88 percent by dollar amount of all small business loans), as are the bulk of the U.S. population and the number of businesses (see Tables 4.1 and 4.2). The majority of small farm loans (about 64 percent, measured by number of loans, and almost 64 percent, measured by dollars of loans) were extended in rural areas, with the remainder extended primarily in suburban areas (see Tables 4.3 and 4.4).
Community Development Lending6
Institutions reporting CRA data disclose the number and dollar amount of their community development loans. Among the 941 institutions reporting for 2009, 679 institutions (about 72 percent) extended community development loans (derived from Table 5). The number of institutions reporting community development loans decreased about 5 percent from 2008, when 712 institutions reported such loans. As in 2008, in 2009 lenders with assets that met or exceeded the mandatory reporting threshold ($1.109 billion in 2009) extended the vast majority of reported community development loans.
When both loan originations and purchases are considered, the dollar volume of community development lending decreased significantly from 2008, from $73.4 billion (data not shown in tables) to $34.7 billion (see Table 5), a decrease of approximately 52 percent. This is primarily due to the unusually high volume of community development loans purchased in 2008. The dollar volume of originations decreased from $49.7 billion in 2008 to $32.7 billion in 2009 (data not shown in tables), a decline of approximately 34 percent. The number of community development loans originated decreased 29 percent, from 22,287 in 2008 to 15,882 in 2009 (data not shown in tables).
Tables are in Portable Document Format (PDF).
2. For the years 2001 through 2007, the following lender asset-size categories were used in Tables 1, 3, and 5 (in millions): less than 100; 100-249; 250-999; and 1,000 or more. To improve users’ ability to differentiate between large bank reporters and voluntary reporters, in Tables 1, 3, and 5 the lender asset-size categories for the 2008 CRA data were adjusted as follows (in millions): less than 100; 100-249; 250-1,060; and 1,061 or more. For the year 2009, the lender asset-size categories have been adjusted as follows in Tables 1, 3, and 5 (in millions): less than 100; 100-249; 250-1,108; and 1,109 or more. Table 1 data reflect the former asset categories for 2001 through 2007 and the adjusted asset categories for 2008 and 2009.
3. 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 census tract, 50 percent to less than 80 percent; a middle-income census tract, 80 percent to less than 120 percent; and an upper-income census tract, 120 percent or more.
4. Beginning in 1998, institutions filing CRA data were allowed to report that the census tract location of a firm or farm receiving a loan was unknown. For 2009, 2.6 percent of the reported small business loans by number and 1.5 percent by dollar amount included such a designation.
5. Data on the share of population across census tract income categories are derived from the 2000 Census of Population and Housing (most current available). Data on the share of businesses across census tract income categories are derived from information from Dun and Bradstreet files of businesses. Calculations exclude agricultural-related firms.