Community Banks Critical for Small Businesses

Community Banks Critical for Small Businesses

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According to the Federal Reserve’s 2021 Small Business Credit Survey, 48% of Paycheck Protection Program (PPP) applicants went to community  banks for funding while only 43% went to Big Banks. What’s more, 78% of those that applied at community banks received 100% of  the funding they requested, compared to just 70% at Big Banks.

As for service: 61% of small bank customers were satisfied with the service they received during the height of the pandemic, while 11% reported dissatisfaction. (The rest were neutral.)  Only 41% of big bank customers reported being satisfied whereas 24% were dissatisfied. Yet, community banks do not seem to  get the credit they deserve.

Never have community banks rallied to do so much for their communities in as short a period as was the case during the pandemic with their Paycheck Protection Program lending and loan modifications. Unfortunately, far too many community banks are not getting their deserved credit from regulators, Congress and community groups.” wrote Kenneth H. Thomas, author of The CRA Handbook (American Banker 9/15/21).

 There is no question that big banks played an important role in PPP. At June 30, 2021, 5-Star JPMorgan Chase Bank and 5-Star Bank of America each reported close to 250,000 outstanding PPP loans. JPMorgan Chase had the highest dollar volume at $22.5 billion. Bank of America was a distant second at $15.7 billion. However, as a percent of total loans, those numbers (2.1% and 1.7%) pale in comparison to most community banks.

On page 7 we have a list of all U.S. banks that reported PPP loans outstanding at June 30, 2021 greater than 30% of total loans. Almost all (48 out of the 52) are community banks. You will not find any of the really Big Banks on this list.

What you will find on page 7, are banks like 5-Star First Home Bank, St. Petersburg, FL, which, even after selling off many of the $1.2 billion in PPP loans it originated over the course of the program (it sold $326 million in the second quarter alone), still has over $400 million in PPP on its books.

These loans are divided among 5,000 small employers, mostly in the Tampa Bay area, but across the country as well. One Clearwater, FL business, Equitus Corp., was reportedly able to not only retain its 26 employees but also increased its staff during the pandemic thanks to its PPP loan from First Home Bank.

A veteran-owned business, Equitus builds and delivers “solutions for mission-critical, big data analytics to support both commercial and government customers”. Without the boost from PPP, it may not have been able to attend the two-day TechNet Fort Bragg Symposium an TechNet Fort Bragg Symposium d Exposition in NC last week. Hundreds of people were in attendance, many of which are students with their sites on cybersecurity and engineering careers. It would have been a big loss for all of us, had they not been able to be there.

You will also see banks like 4-Star Carver State Bank, Savannah, GA on page 7. Established in 1927, Carver is one of just 20 African-American owned banks left in the United States and is also the only bank headquartered in Savannah with a Community Development Financial Institution (CDFI) certification. When small, minority-owned businesses were allegedly shut out from PPP at the Big Banks, many turned to Carver.

This $70 million asset bank, with just 15 employees, made more than $11 million in PPP loans. Most of the loans were less than $50,000 so more than 220 companies were helped, and maybe even saved, by Carver.

Minority Depository Institutions (MDIs) and CDFIs, like Carver, are the focus of a new Mission-Driven Bank Fund being set-up by the FDIC. This fund is intended to provide a conduit to get private capital and resources to these mission-driven banks. FDIC defines mission driven as MDIs and CDFIs that support low– and moderate-income, minority, and rural communities. But, there are mission-driven banks that fall outside that definition.

5-Star Spring Bank, Bronx, NY, for example, prides itself in being NY’s first B Corp Bank. This means that, in addition to banking, it meets social and environmental standards—balancing profit and purpose. Its job is to assure equal access to the banking system, addressing the wealth gap and helping its community avoid the pitfalls of predatory lenders. It is no surprise that Spring Bank made the list on page 7. Like Carver, Spring Bank welcomed those that had left Big Banks empty-handed. At June 30, 2021, Spring Bank had 562 PPP loans outstanding totaling almost $120 million.

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