One Bank Reveals the Story behind Small Business Loans

September 13, 2011

You've probably heard from sources like FDIC that for the first time in three years, bank lending increased. However, bank loans to small business keep dropping. Yet, one bank boasts that its lending to small- and medium-sized business has gone up higher than the industry average of less than a 3 percent increase.

The New York Times article tells the story of Sterling National Bank, a bank founded in 1929 -- during the one of most turbulent years in American history. The founders decided to start the bank because it saw few banks serving small- to medium-sized businesses.

So how does Sterling pull in a 10 percent increase, significantly higher than the industry average? The problem lies with its definition of small- to medium-companies. "... the key phrase here may be Mr. Millman's qualification, what we call small and mid-size companies. For Sterling, those are companies with revenues that start at $4 or $5 million and reach as high as $100 million and who borrow as much as $20 million."

The definition of a small business loan according to FDIC is $1 million or less. And by that definition, Sterling's 10 percent shrinks to three. The end of the article is telling.

"Where would he recommend people who want $1 million loan go to get one, I asked. Sterling National Bank, he answered: 'The experience will be much better at an institution like ours at that dollar level than at any other institution I can think about.'

"But when asked where borrowers seeking smaller loans — $500,000, say — might go, Mr. Millman had no similar advice. 'I honestly don't know the answer to that,' he said."

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