The story on CNBC.com published last week about Citi increasing their lending to small businesses in 2011 offered some numbers from Citi that were, in my mind perplexing, to say the least.
It stated that the bank had met and surpassed its $7 billion lending goal to U.S. small businesses in 2011 by $900 million. These numbers were stated in a press release that Citi had released.
Citibank is not required to issue these press releases. But as an entity that is regulated by the FDIC, it (and every other bank) is required to file quarterly call reports, where it reports on a wide variety of different financial metrics. Among the many numbers in these complex reports (that are publicly available at www.fdic.gov) are banks stating their outstanding small business loans.
In the FDIC reports, CitiGroup holding company reported that its various subsidiaries held just north of $7.7 billion of small business loans as of December 31, 2010. The same entities held just over $7.6 billion worth of loans as of Sept. 20, 2011 (the latest reported data). This drop in small business lending from Citi tells a very different story then its press release.
How could Citi’s press release offer a glowing review of its success in small business lending, and an FDIC report tell such a different story? We think the answer lies in the definitions. The FDIC numbers include any loan to a small business with a balance of $1 million or less. We believe that in the numbers released in Citi’s press releases, they include any loans to a business with revenue of $20 million or less.
The question is, how should we define a small business when it comes to lending? At MultiFunding we think that the definition should be based on truly main street businesses. The vast majority of businesses have revenue of $1 million or less. The banks like to include bigger businesses in their numbers that could have hundreds of employees.
With the flip of one button on their spreadsheets, Citibank could report on its lending to companies with up to $1 million in revenue or even up to $5 million in revenue. We believe that this data would paint a very different picture then the one they are presenting.
I don’t mean to single out Citi. All of the big banks that we are aware of have the same issue. As an example, last week J.P Morgan issued a release shouting that “Chase Lent $17 Billion to American Small Businesses in 2011, up 52% from 2010.” In the FDIC reports, JP Morgan holding company reported that its various subsidiaries held just about $24.5 billion of small business loans as of Dec. 31, 2010. This number is almost identical to their small business loans reported as of Sept. 30, 2011.
Ultimately, small business owners deserve and are entitled to know a bank’s lending record before deciding whether or not to apply for a loan there. Otherwise, they are wasting their time, a valuable resource for small business owners.
At MultiFunding we’ve given every bank of the country a grade for their small business lending activity based on the FDIC data. Each bank is graded for the ratio of its outstanding small business loans to its domestic deposits. On average, banks in America use 7.75 percent of their domestic deposits to make small business loans. The vast majority of banks exceed the 7.75 percent threshold, and we give then an A or a B (depending on their percentage). Unfortunately, Citibank’s ratio is 2.32 percent and therefore, we give them an F.
If our report card is wrong, I challenge Citibank and the other big banks to tell us why.
Ami Kassar is founder and CEO of www.multifunding.com, small business loan advisors.