Small Business Lending Survey 2018

FEDER AL DEPOSIT INSUR ANCE CORPOR ATION

2018

FDIC Small Business Lending Survey

ACKNOWLEDGMENTS

The insights from the Small Business Lending Survey (SBLS) are a result of the contributions of a large number of U.S. banks. In particular, the Federal Deposit Insurance Corporation (FDIC) sincerely thanks the approximately 1,200 banks that responded to the survey. Without their invaluable participation, it would not have been possible to provide a nationally representative picture of banks' small business lending practices, or to compare the experiences of different-sized banks.

In addition, 40 banks across the U.S. participated in interviews with FDIC staff, helping ensure that the questions asked by the SBLS were understandable, answerable, and relevant to the banking industry. These conversations were necessary because the SBLS was specifically designed to cover topics not already addressed by other data sources. Another 11 banks were visited to test the functionality of the web interface used to collect survey responses. The FDIC thanks these 51 banks for giving generously of their time and expertise to the development of the final survey questionnaire.

Multiple divisions of the FDIC collaborated to complete this study. Staff from the FDIC's Division of Insurance and Research (DIR) led and coordinated the survey development, implementation, analysis, and writing. The primary authors of the report are

DIR staff Jacob Goldston, Yan Y. Lee, and Smith Williams. Valuable research and analytical support were provided by DIR staff Claire Brennecke, Alexis Ercolino, Isabella Jaeger, Maria Hussain, Chet Polson, Benjamin Rodriguez, and Jeffery Traczynski. Karyen Chu of the Division of Depositor and Consumer Protection (DCP) and Jack Reidhill (DIR) provided invaluable insight and guidance throughout all phases of the project. Kris Rengert from DCP and Rae-Ann Miller and Suzy S. Gardner from the Division of Risk Management Supervision contributed to the survey development phase. A number of senior officials and staff provided helpful comments and suggestions on drafts of the report; from DIR, Fred Carns, Richard Brown, Phillip Shively, Rosalind Bennett, Stefan Jacewitz, and Jonathan Pogach, and from DCP, Keith Ernst.

Neeta Allagh and Donna Vogel from DIR very ably guided us through the publication process. Heather Woods, from the FDIC's Graphic Design and Printing Unit, prepared the report for publication and provided design support. Our external editor Jane Lewin very thoroughly edited the text of this report.

Finally, we thank staff at the U.S. Census Bureau, which the FDIC contracted to assist in developing the survey, build the web interface, conduct the data collection, and protect respondent identities from disclosure.

Diane Ellis Director, Division of Insurance and Research

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ii FEDERAL DEPOSIT INSURANCE CORPORATION

CONTENTS

Acknowledgments.................................................................................................................................... i

List of Tables and Figures........................................................................................................................ v

Executive Summary................................................................................................................................. 1

Section 1. Introduction............................................................................................................................ 5

Section 2. Defining and Measuring Small Business Lending............................................................. 9 2.1 Defining Small Business Borrowers: Banks' Approaches.................................................................................. 9 2.2 Measuring Small Business Lending (I): Loans That Exceed the Proxy Limit.............................................. 13 2.3 Measuring Small Business Lending (II): Loans by Banks That Specialize Their C&I Loans to Small Businesses ..................................................................................................................................................... 13 2.4 Measuring Small Business Lending (III): Loans Secured by Residential Mortgages ................................. 15 2.5 Extrapolating a Lower Bound on the Proxy's Understatement of Small Business Loans........................... 17 2.6 Conclusions............................................................................................................................................................... 18

Section 3. Markets and Competition................................................................................................... 21 3.1 What Is Your Bank's Geographic Market for Loans to Small Businesses?................................................... 21 3.2 Where Can a Small Business Apply for a Loan from Your Bank?..................................................................23 3.3 Who Are Your Bank's Competitors? ...................................................................................................................24 3.4 Conclusions...............................................................................................................................................................28

Section 4. Competitive Practices and Advantages ........................................................................... 29 4.1 How Does Your Bank Maintain and Generate Relationships with Small Businesses?...............................29 4.2 What Are the Competitive Advantages of Your Bank and of Your Number One Competitor?............... 31 4.3 Conclusions...............................................................................................................................................................35

Section 5. Loan Products and Underwriting Practices..................................................................... 37 5.1 What Loan Products Does Your Bank Offer to Small Businesses? ............................................................... 37 5.2 For What Purposes Do Small Businesses Use These Products? ....................................................................39 5.3 Which Underwriting Criteria Are Used by Your Bank to Evaluate Small Business Borrowers?..............40 5.4 What Collateral Does Your Bank Accept from Small Businesses?.................................................................40 5.5 When Is Your Bank Willing to Make an Underwriting Exception for a Small Business? ........................43 5.6 Does Your Bank Require Minimum Loan Amounts and Use Standardized Loan Products?..................43 5.7 Does Your Bank Lend to Start-Ups, and if so, Do You Underwrite the Loans Differently from Loans for Established Small Businesses?.............................................................................................................45 5.8 Conclusions...............................................................................................................................................................47

References .............................................................................................................................................. 49

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