Many small banks also specialize in guaranteed loan programs of the Small Business Administration and the U.S. Export-Import Bank. Large banks offer the same programs. But overall, they tend to be less flexible about small-business loan guarantees, especially when it comes to startups and young firms, says John Guy, small-business segment director for Charlotte, North Carolina–based Wachovia.
Small-bank executives also tend to make local, hands-on decisions, they say.
"Small banks personally evaluate loans in their local offices, not in distant locations … like big banks," says Allen Brown, CEO of Metro Bank, which has 11 branches in Houston and three in Dallas. "We make decisions faster, even on the same day," says Mr. Brown.
At Commerce Bank, which has four branches in Laredo, executives use their intimate knowledge of the area to offer credit to financially unsophisticated small businesses that larger institutions might reject, Mr. Urrabazo says.
He cites an example: "One customer plans to open a restaurant and wants to negotiate a deal without a realtor. I’m basically telling him how to do it. A large bank loan officer wouldn’t take him by the hand like that."
New York National Bank, a Bronx-based institution with five branches, follows sound lending practices but gives small businesses reasonable benefit of the doubt.
"Very seldom does the [large] bank look at the financial statements from the point of view of the glass being half empty as opposed to half full," says spokesman Mike Gill.
Some large-bank executives actually admit that smaller players have an edge in personal service. Most think otherwise, however, saying the notion is a myth.
"Community banks, either factually or from a perception standpoint, have given people the idea that smaller is better, more intimate," says Mr. Guy. "Our local branches can give the same service."
Large banks depend heavily on the Internet to lure small businesses. They also have central loan processing facilities that receive and evaluate huge volumes of online applications using computerized credit scores to make fast decisions in a cost-effective manner, often within 24 hours. Credit-scored loans usually don’t involve face-to-face meetings.
Chicago-based Bank One, for example, credit-scores loans up to $250,000. For the largest loans in that range, the bank also considers factors such as management and company history.
"We also take a second look at deals in urban environments and enterprise zones," says Vice-president Francisco Menchata.
Fast-growing Washington Mutual, the seventh-largest financial institution in the nation, is considering the use of credit-scoring for loans up to about $50,000. The trick, says senior vice-president Steve Pumphrey, is figuring out how to implement computerized loan approval while maintaining a personal touch.
"We’re not going to back away from small-business customers, like money-center banks that ask them to do everything by an 800 number or on the Internet," he says.
Small banks pride themselves on personally reviewing every business loan application. Computerized evaluations are anathema to personal service and potentially hurtful to business, says New York National Bank spokesman Mr. Gill.
"Credit-scoring is fine if you’re a branch of a large bank getting 3,000 loan applications a week and you do very well by approving a few hundred of them," he says. "But small banks can’t operate that way. It screens out too many businesses, especially in minority communities."
Executives at large financial institutions claim that big banks can do more for minority businesses because of their sheer size.
"We can offer all of the lending services that any company would need through its entire life cycle. How many small banks can do that?" says Wachovia’s Mr. Guy.
Wachovia, Bank of America, and Wells Fargo are among the nation’s top SBA lenders. Some large banks set minority lending goals. For example, Wachovia recently announced plans to loan $5 billion to women-owned businesses through 2005. Wells Fargo set a goal two years ago to lend $3 billion to Hispanic-owned businesses by 2009. So far, the banking giant has loaned more than $1.5 billion, says Tim Rios, vice-president of the bank’s Community Development Group.
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