Originally published in the Daily Record.
Small business lending in Baltimore has fallen off over the past 10 years even as deposits continued to grow, a Johns Hopkins University report found.
Much of the changes have been brought about through a number of post-recession changes, including mergers and acquisitions in the banking industry that led to Baltimore becoming a “branch town” for many national banks.
“I think it clearly played a role,” said Mary Miller, one of the report’s authors. “Clearly during some of that time we saw more bank acquisitions. Larger banks taking market share and smaller banks being acquired, and that clearly played into it.”
Miller and co-authors Ben Seigel and Mac McComas wrote the report as a follow-up to a report last year through Johns Hopkins’ 21st Century City Initiative that indicated there was a lack of funding, through lending or venture capital, for businesses in Baltimore.
The consolidation within the banking industry has hampered the efforts to lend to small businesses in Maryland, they found this year. Banks tend to invest more in the communities where they are headquartered, and Baltimore’s biggest banks by deposit are all based elsewhere.
Overall, the ratio of deposits to small business loans has plummeted since 2007. Over the 10 years since, deposits nearly doubled while small business lending fell 32 percent.
If 2007’s trends continued, $400 million more would have been invested into small businesses in Baltimore, the report found.
“One of the findings we listed here, that really jumps off the page, that it’s the top depository banks serving Baltimore City, those top banks had maintained the same loan-to-deposit ratio as they had back 10 years ago in 2007,” Seigel said. “In 2016, the data shows that there would have been an additional $400 million in small business lending to Baltimore small businesses.”
One underutilized tool in Baltimore has been Small Business Administration loans. These reduce much of the risk for banks by federally guaranteeing up to 85 percent of loans to small businesses.
But many banks in Baltimore do not participate in the program. M&T Bank accounts for around 50 percent of SBA loans in Maryland.
The issue may come down to what resources banks decide to devote to SBA programs in the market, Miller said.
“The reason that I’ve been given is just you have to put staff in who know how to underwrite the loans, what the SBA requirements are,” she said. “You have to have people who are skilled with that type of loan.”
Miller and Seigel also suggested that bigger banks could help capitalize the smaller community institutions in Maryland that may not be able to offer the larger loans. Instead, these financial institutions could write smaller loans that help businesses grow to the point where they are viable customers for the big banks.
Of course, they also suggest that Baltimore leaders encourage the big banks to invest in small businesses themselves.
“Try to do more small business lending,” Miller said. “If they’re not going to do it directly, I think they should think about helping these small (banks).”
