Lending to small firms and small farms

Bank regulators have collected data on the amount of small business loans made to firms and farms since 1993. These data indirectly provide a valuable source of information on these types of lending because borrower and loan size are highly correlated. The data indicate that business loans to small firms and farms make an important contribution to total lending activity in the Ninth District and play a dominant role in terms of business lending. Moreover, small business and farm lending is a larger percentage of business lending in the Ninth District than in the United States as a whole. The level of lending to small firms and small farms has remained fairly constant over the last several years.

A substantial portion, about 42 percent, of all business loans made by banks in the Ninth District as of June 1996 was made to small firms and farms (assuming all business loans under $250,000 are small firm and farm loans). Business loans include loans for farm production, commercial and industrial loans and loans secured by farm and nonfarm real estate. A significant majority of all business lending by community banks in the District, 71 percent, goes to small firms and small farms. A community bank is defined here, imperfectly, as any District bank that is not affiliated with the FirstBank System or Norwest Corporation. Business loans under $250,000 also make up a significant amount of all loans made in the District: 31 percent for community banks and 22 percent for all banks.

Tables 1 and 2 provide additional detail on the distribution of business loans to farms and firms by the size of the loan.

Table 1. Distribution of Business Loans to Farms by Size of Loan (in thousands of dollars) *

Table 2. Distribution of Business Loans to Firms by Size of Loan (in thousands of dollars) *

*Information as of June 1996.