As bankers and federal lawmakers wrestle with how to boost lending to small businesses, community banks in Western New York are showing that they have a role to play.
M&T Bank Corp. remains by far the largest participant in U.S. Small Business Administration loan guarantee programs in the Buffalo and Rochester markets, dominating the rankings.
But most of the loans in the five months that ended in February were made by community or small regional banks, according to the agency's latest statistics. And the vast majority of the lenders, including four of the six largest, were smaller banks or even credit unions, such as Five Star Bank, Evans Bank and Genesee Regional Bank.
Evans Bank, for example, broke into the top five this year, despite being a mere blip a year ago. Even Olean Area Federal Credit Union joined the act, with a single loan of $165,000.
"Community banks have always been an important source of capital for many small businesses," said Franklin Sciortino, director of the Buffalo district office. "Our increased marketing of our SBA loan programs and services to increase the number of lenders facilitates lending to small businesses."
That has paid off, with small-business lending on the rise again. For the five months ending in February, 23 lenders made 316 loans locally for $51.07 million -- a 70 percent increase in loans and tripling of dollars from the same period a year ago, when just 18 lenders made 186 loans for $17.4 million. Still, it trails peak levels from a few years ago, because of tighter lending standards and slack borrower demand, as many businesses remain reluctant to take on debt until the economy picks up.
"Small businesses and the community banks that finance those businesses are critical to our economic recovery," Herb M. Allison Jr., assistant secretary of the Treasury for financial stability, said in Feb. 26 testimony to two House committees, urging lawmakers to support new Obama administration proposals to encourage more lending. "Small businesses are asking for our help."
Small businesses are widely viewed as the engine of the nation's economy, creating seven of every 10 new jobs and employing nearly half of all private-sector workers.
About 23.7 million small firms account for 99.7 percent of employers and produce more than half of the nation's gross domestic product, the country's total economic output.
But small-business and community advocates nationwide, as well as Obama administration officials and other politicians, complain that big banks bailed out by the government have curtailed lending.
As a result, they say, businesses have been unable to grow or hire, hampering the nation's economic recovery. Several congressional hearings, including one last week in the Senate, have been held on that issue.
Specifically, the Federal Deposit Insurance Corp. reported that bank lending posted the largest one-year decline in lending since the 1940s, while the Federal Reserve found that 10.8 percent of banks had cut small-business credit lines in the last quarter, noted U.S. Rep. Nydia M. Velazquez, D-N.Y., chairman of the House Committee on Small Business. Despite the recovery from a year ago, SBA lending remains down 30 percent from 2007 levels.
"Small businesses continue to face challenges accessing credit, and the data show there has been a broad-based decline in lending," Allison said.
In response, Congress and the Obama administration extended through the end of this month several provisions of last year's Recovery Act that waived SBA fees for borrowers and increased the agency's loan guarantee to 90 percent.
Those provisions, which had already expired and been refunded once before using a total of $500 million, had expired again at the end of February. But the agency estimated the additional $60 million will support another $1.8 billion in loans.
Locally and nationally, higher activity among smaller institutions is a result of the SBA's efforts to drum up more interest and activity among community banks and credit unions that historically have not participated as much with SBA programs, but which were needed to take up the slack in the past year. Indeed, community banks have insisted all along that they are still lending, as do many regional banks like First Niagara Financial Group.
The increase also reflects the continued pullback by the larger national banks that still are licking their wounds from past loan losses and fearful of taking on more risk and depleting their capital even further. As such banks as RBS Citizens -- once the No. 2 SBA lender in the country and a consistent rival for M&T locally -- have backed off, smaller banks have become more essential.
Some of the larger banks, however, are more active this year. HSBC Bank USA, for example, made three times as many loans last February as a year earlier, for six times as much money, while KeyBank quadrupled its loan tally and more than doubled the money.
M&T, a consistent SBA lender, is the top SBA lender in Buffalo, Rochester, Syracuse, Baltimore and Binghamton, and is ranked No. 9 in the nation, according to an investor presentation by the bank last week. Last year, the bank made 6,721 small-business loans totaling $911 million, with an average loan of $136,000.
It is trying to maintain that record. Since Oct. 1, the start of SBA's fiscal year, M&T has made 103 loans in the Buffalo and Rochester areas under the agency's primary 7(a) program, totaling $12.5 million -- more than double the loan tally of the No. 2 bank, Five Star, and 57 percent more than the No. 2 dollar lender, First Niagara Bank.
Five Star, a subsidiary of Warsaw-based Financial Institutions, made 50 loans that totaled $4.83 million. First Niagara, which was No. 3 in number of loans, made 39 loans for $7.9 million.
Both were up substantially in dollars from a year ago.
By number of loans, HSBC Bank USA was fourth, with 32, followed by Evans with 21 and Genesee Regional with 13.
By dollars, Evans leapt to No. 3 with $6.85 million, followed by Five Star.
The New York Business Development Corp. was fifth with $3.36 million.