Small Business Banking: Are big lenders making the grade with Black businesses?

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Some of the nation’s largest lenders are just learning whether they are making the grade when it comes to supporting Black and other minority-owned businesses. A study by the Greenlining Institute, a public policy research and advocacy group in Berkeley, Calif., ranks PNC Financial Services Group, Bank of America and M&T Bank Corp. as the largest grantors of U.S. Small Business Administration loans to minorities. The report, Analysis of 2005 SBA Lending by the Nation’s Largest SBA Lenders, ranked lenders with more than $50 billion in assets that made more than 200 SBA-backed loans in fiscal year 2005. It shows that PNC Financial Services granted 7.7 SBA-backed loans to African-American businesses per $5 billion in total assets, while M&T issued 7.5. Wachovia and Citigroup issued less than one loan to African-American businesses per $5 billion in assets. Based on the total dollar amount loaned to all minorities, Bank of America distributed more than $162 million in SBA-backed loans to minorities in 2005 and PNC was second with about $150 million. At the bottom of the list was Wachovia Corp., with $11.7 million in loans to all minorities, Citicorp, with about $10.2 million, and Sun Trust Bank Corp., with $7.7 million.

With the exception of Sun Trust, all lenders have a major presence in the New York and New Jersey metropolitan area.

Still Off the Mark
Minority-owned businesses received nearly a third of all SBA loans generated in 2005, according to the study. But African-American-owned firms received only 3 percent of those loan dollars for the year and Hispanic-owned firms 7 percent, while Asian-owned firms received 20 percent. While other large banks, such as HSBC and U.S. Bancorp, received passing grades from the Greenlining Institute, major lenders are still off the mark when it comes to lending to minority-owned enterprises.

“We would like to see about 60 percent of all SBA loans go to minorities—20 percent to African-Americans, 20 percent to Latinos and 20 percent to Asian-Americans,” says Vina Nguyen Ha, program manager for economic policy for the Greenlining Institute and author of the report.
The Institute, which emerged from the Greenlining Coalition, one of the oldest coalitions of African-American, Asian American/Pacific Islander and Latino community leaders, hopes to encourage competition among the nation’s largest SBA lenders and offer minority business owners options for the best places to get money for their businesses.

Part of the frustration in achieving those goals is the decimation of the SBA budget, Ha says. It has been cut in half since President Bush took office, he says, noting that the 2006 budget is about $123 million less than 2005’s. 

“The approved $456 million in the 2006 budget is half of what the agency received before President Bush took office,” Ha says. “This study shows that while some advancements have been made, the SBA can still do a lot more to assist in the growth of minority-owned businesses.”

Lenders Respond
In response to the Institute’s findings, a representative of Citigroup speculated about the validity of some information contained in the report and how it was obtained. “I question the accuracy of the numbers and figures highlighted in the study,” says Ginger Siegel, director of Business Banking for Citibank-North America, in New York. “We have always supported and fostered the entrepreneurial spirit,” she says.

Ha says the statistics and percentages presented in the study were obtained from a number of public records, government documents, the Internet, surveys and other banking and financial-industry related studies.

Bank of America was ranked the highest in making SBA loans to all minorities. In 2004, the bank issued more than $24 million in SBA loans to African-American-owned businesses. JP Morgan Chase was second with about $13 million. The lowest ranked banks in 2004 were Fifth Third Bancorp with $1.8 million in loans to African-Americans and Wachovia Corp., also with about $1.8 million. While Wachovia nearly doubled the amount of loans that it provided to African-American in 2005, it remains near the bottom of the list for the second consecutive years.

Wachovia Corp. says SBA lending is only a fraction of its small business lending. It defended its poor performance in the study by highlighting the fact that it provided more than $9.7 billion in standard, conventional loans. “Wachovia is committed to supporting minority small business owners as they start and grow their businesses,” says Aimee Worsley, corporate communications manager. She notes that the financial services company also develops qualified minority- and women-owned suppliers to work as contractors and vendors for the bank.

Bank of America continues to be at the forefront in promoting entrepreneurship and continues to rank at or near the top of many independent banking studies and analyses. Bank spokesman Todd Rosin says the majority of small business owners are minorities and the bank supports their initiatives in the communities it serves. “B of A has a $750 billion commitment to strengthen the communities in which we do business,” Rosin says. “A portion of this investment goes to building small business opportunities in traditionally underserved communities.” He adds that the bank provides conventional loans and lines of credit for $1 million or less and up to $5 million to businesses in low- and moderate-income census tracts.  

Citibank, meanwhile, launched a number of lending initiatives that are designed to promote minority entrepreneurship, Siegel says. For example, in February 2005, Citibank, Henry Schein Inc., and the National Dental Association formed an alliance to help African-American dentists establish and maintain practices in underserved urban communities nationwide. “We have committed $10 million to this project,” Siegel says.

Citigroup was also awarded the 2005 Corporate Leadership Award by the National Urban League, in November 2005, in part for its $1 million donation to help launch the Urban League Katrina Fund for rebuilding communities devastated by Hurricane Katrina in 2005.

Mixed Minority Reaction
Reaction to the Greenlining study by some minority entrepreneurs is mixed. For example, in New Jersey, some business owners believe that issuing a report regarding bank lending practices based on ethnicity is irrelevant when it comes to getting a business loan. “I am not sure how much of that data would actually help an entrepreneur secure a loan or how reliable the numbers are,” says Ravi Gupta, owner of Sovereign Consulting—an engineering company based in Robbinsville, N.J. “People work hard to make numbers look good.” Gupta dismissed the notion of obtaining an SBA loan to start his business and opted for a local bank for financing.

Others laud the Institute for issuing a comprehensive report on the lending practices of financial institutions. “A report is never a bad thing if you are a business owner,” says Barbara Harvey Carter, co-owner of SB Fitness Complex in Milwaukee, Wisc. “They [financial institutions] might be falling short in their lending goals and not be aware of it.” Harvey Carter received a $300,000 SBA-backed loan from African-American-owned Legacy Bank in Milwaukee in 1997.   

To access the complete Greenlining study, go to http://www.greenlining.org and click on “Analysis of 2005 SBA Lending by the Nation’s Largest SBA Lenders.”

CUMULATIVE GRADES

FINANCIAL                      CUMULATIVE
INSTITUTION                       GRADE

HSBC USA            A-
Bank of America            A-
PNC Financial Services        B+
Comerica            B+
U.S. Bancorp            C
M&T Bank Corp.            C-
Citicorp Banking Corp.        C-
Wells Fargo            C-
J.P. Morgan Chase & Co.        C-
SunTrust            D+
Wachovia            D+
National City Corp.        F
KeyCorp                F
Fifth Third Bancorp        F
BB&T Corp.             F

Source: The Greenlining Institute

Ranking of Nation’s Largest SBA Lenders* by Total Dollar Amount to African Americans

Bank of America            $29,607,500
PNC Financial Services Group    15,547,500
Wells Fargo            15,268,800
Comerica            14,833,900
U.S. Bancorp            14,535,400
J.P. Morgan Chase & Co        12,312,200
BB&T Corporation        10,292,500
HSBC                9,242,700
M&T Bank Corporation        6,547,100
Fifth Third Bancorp        5,030,850
National City Corporation    3,927,300
Wachovia            3,491,000
Keycorp                2,988,000
Suntrust Banks, Inc.        2,610,100
Citicorp            41,491,700

* Defined as over $50 billion in assets and that made over 200 SBA loans overall.
Source: U.S. Small Business Administration