Update: This post has been updated, adding commentary from a Bank of America spokesman.
If you’re in the market for a loan, you might want to look at the Small Business Administration's latest ranking of the top 100 financial lenders for its most-popular, flagship 7(a) loans.
The list, which came out last week, is eye-opening for a number of reasons. Chiefly, it shows that the top 10 lenders are responsible for more loans than the remaining 90 institutions combined. And some of the nation’s top banks are pretty far down on the list, which suggest they’ve more or less gotten out of the business of making loans to entrepreneurs.
At first blush, that's not at all reassuring--particularly as consolidation within the lending market could spell bad news for overall access to credit. Yet some institutions are far and away the leaders and may be worth a closer look, as you consider your own financing needs.
SBA-backed 7(a) loans, which are geared to small businesses, come with a government guarantee to lenders of up to 85 percent against default. In theory, that means financial institutions should have an incentive to make the loans, as they’re free of much of the risk. And entrepreneurs should be interested because there's potential for lower-interest financing--in amounts up to $5 million--that can be used to meet a wide variety of operational expenses.
Here’s what this year’s list shows: Collectively, the top 100 lenders made 41,000 loans, worth nearly $16 billion in 2015. (For fiscal year 2014, financial institutions made $20 billion of such loans.) The top 10 lenders, this year, made more than half of the loans of the top 100, at a total value of worth $7.2 billion. Equally surprising, Bank of America was nowhere near the top. The second-largest bank by assets in the country, based in Charlotte, North Carolina, ranked number 61 on the list, and made just 269 loans worth $62 million. A Bank of America spokesman said that SBA lending is a very small portion of the bank’s small business lending, which totaled $5 billion in the first half of 2015. The spokesman also noted that Bank of America ranked 30th in the most recent SBA ranking for total number of loans.
Below is a list of five banks, ordered by number of loans relative to volume, because half of the top 10 made well under a thousand loans. That means the loans they did make were for very large amounts of money, which most entrepreneurs don’t need, or wouldn't qualify for. The average size of the loans made by Seacoast Commerce Bank, for example, which made just 325 loans in 2015 and ranks number 10 on the list, was close to $1 million. By contrast, the average size of the loan from the nation’s leading SBA lender Wells Fargo was about a quarter that size.
Here’s a quick look at five good bets:
1. Wells Fargo leads the pack, having made nearly 8,000 loans (or 20 percent of all loans among the top 100), worth nearly $2 billion.
2. JP Morgan Chase made 4,040 loans worth $753 million.
3. Huntington National Bank comes in third, with 4,337 loans worth $672 million.
4. U.S. Bank National Association, a subsidiary of US Bancorp, ranked fourth with 3,997 loans worth $776 million.
5. Celtic Bank Corporation made 1,586 loans, worth $500 million.
If you’re looking for larger loans, you might consider SunTrust Bank, which made 575 loans with an average value of $634,000. Similarly, Newtek Small Business Finance provided close to 400 loans worth close to $1 million, on average. Unfortunately, not many of the top 100 banks does a good job making smaller loans, available to business owners, in the $40,000 to $50,000 range, based on my analysis of the numbers. One bank that comes close is Boston's Eastern Bank, which made nearly 900 loans worth an average $58,000 a piece.
Unsurprisingly, that’s the sweet spot non-bank online lenders have gone after with vigor. While they provide financing in a much-needed gap area for business owners, their loans are generally far more expensive than those backed by the SBA. And small business owners need to take a serious look at their terms, which can include extremely high interest rates and initiation fees, before biting on one of the numerous offers sure to be coming your way.