OCC Generates Small Business Lending Ideas

During 1997, the OCC held meetings with a variety of participants across the country to identify ways that banks can support and generate the health and growth of small businesses. Held to identify ways in which banks could be and should be fulfilling their CRA obligations, the OCC identified a variety of needs and ideas through these meetings.

Ideas include programs that have already been undertaken - with proven success. Other ideas involve things that small businesses would like but that banks or other sources have not yet offered. The ideas include credit products, business and credit information, and services banks could offer that small businesses would like to have.

First, small businesses reported that they are heavily concentrated in low-income and inner-city areas with limited or less than convenient access to banks. This means, of course, that services provided to small businesses would enhance the bank's CRA rating simply because such a high number of small businesses are located in census tracts that count.

Businesses are looking for products and services such as non-traditional delivery systems to overcome the lack of bricks and mortar branches in these areas. Small businesses would also like to have an ongoing relationship with a bank officer - a sort of personal banker for the small business.

Suggestions for solutions included banks developing partnerships with small businesses and community groups, and outreach programs by banks to bring together businesses and bank products and services. Second, small business owners complained that they need better access to information. Even knowing that information is available would be a positive. In particular, small businesses want access to information - on affordable terms - that responds to their information needs and the ways they can absorb information. Small business owners complained about service problems, such as working with a bank officer who fails to explain credit criteria, and then fails to give clear, understandable reasons for denial. This complaint falls squarely into the "extra service" or "coaching" allegations made by minorities about loan officer service provided to mainstream customers.

This service and information concern opens the door to a multitude of opportunities, most of which should enhance the bank's CRA rating. Some opportunities fall in the service category, such as providing materials that explain the features and advantages of different types of deposit accounts and credit programs that the bank offers.

Other ideas include staffing the small business lending department with a diverse staff that reflects the population in the market. In particular, loan officers that speak languages other than English can increase communications with customers and help to identify product needs. By providing a staff that reflects the cultural diversity of the community, the bank will increase its opportunities to learn about community needs and interests, and to communicate its willingness and interest in serving a diverse group of customers.

Third, small businesses need financing - and they need some flexibility in that financing. Small businesses may not be ready to request a "commercial loan." Small businesses may need operating funds to smooth over variations in cash flow. They may need relatively small amounts of credit, including overdraft checking, lines of credit, or small revolving loans. Many community banks actually make secured loans on trucks, plows, other work vehicles and work equipment.

In addition to financing, small businesses may need special products or services that take into account common problems involving cash flow, bookkeeping, payroll, and taxation. A little creative thinking here could go a long way on your bank's CRA rating.

ACTION STEPS

Talk with your bank's commercial and small business lenders. Find out what they really do to bring in customers. Also find out what they know about opportunities for loans to small businesses in your market.
Schedule a lunch with your CRA manager (which might be yourself) and your small business lenders.
Talk through how efforts to increase small business lending and services could support the CRA program.
Schedule meetings with local groups such as the Chamber of Commerce and other groups representing local businesses. Discuss banking needs and opportunities. Be sure to ask about information needs.
Find out how many small businesses are in your assessment area and what they do. The Chamber of
Commerce is a good place to start. Also, the Bureau of Census conducts surveys of small businesses and may have useful information.
Review your consumer installment portfolio to see if any loans to small businesses were made and booked as consumer loans. If so, take credit for them for CRA purposes, and consider how these loans would provide a model for small business credit products.