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Small Business Loans are Profitable for Some Banks
The business case for bank loans to small businesses and the picture comes up positive!
The Small Business Administration Office of Advocacy has studied the business case for bank loans to small businesses and the picture comes up positive! You might want to know these research figures before you make your next visit to a bank for a loan.
This study investigates the contribution of relationship
lending to the value of banks by estimating the
market premium placed on the small business loan
portfolios of banks.
The complete report is available online, but here are the high points:
- Small business loans in the form of commercial
and industrial loans with original amounts of
$1 million or less add 10.5 cents to the value of
a banking organization for each dollar of such
loans held in the bank’s portfolio relative to larger
commercial and industrial loans.
- This value-enhancing effect emanates from the
sample of the smallest banking organizations, those
with assets less than $500 million.
- The value-enhancing effect arises primarily
from holdings of the smallest category of
commercial and industrial loans, those with original
amounts of $100,000 or less, with the differential
effect for the smallest category of banks being over
28 cents per dollar of such small business loans.
- The authors find no evidence that small
commercial real estate loans, which tend to be
transactional rather than relationship loans, provide
a differential effect on bank value beyond that
produced by commercial real estate loans more
generally. However, commercial real estate loans do
produce value for the smallest category of banks.
The full text of this report and summaries of other
studies performed under contract with the U.S.
Small Business Administration’s Office of Advocacy
are available on the Internet at www.sba.gov/advo/
A copy of this study is located at
sba.gov/advo/research/rs301tot.pdf, and the research summary is
available at: sba.gov/advo/research/rs301.pdf. Should you need
further information, please feel free to contact Charles Ou at (202) 205-
6530 or firstname.lastname@example.org.
Edited by Carolyn Allen