A familiar narrative around small business lending goes something like this: big banks are slow to evaluate small business borrowers, and often deem loans too risky to fund. Seeking speedier approvals and easier credit standards, business owners take on alternative financing, paying higher borrowing costs for the faster money.
There’s plenty of evidence to support that story. In the three years following the financial crisis, bank lending to small businesses declined by 18 percent, twice the rate at which all commercial lending slowed. And there is no shortage of alternative financing firms—from traditional providers of merchant cash advances to data-driven startups—seeking to meet small businesses’ unmet borrowing needs.
What gets lost in the coverage is that commercial loans aren’t the only way banks lend to small businesses, as Federal Deposit Insurance Corporation data compiled by American Banker and published online this weekend makes clear. Big banks also have large credit-card issuing operations catering to small businesses, which helps explain why their share of lending as reported in American Banker is bigger than conventional wisdom dictates it should be.
