Lighten Up

Small Chance

Contrary to popular belief, the recent rash of bank mergers and acquisitions is not leaving small businesses high and dry in the hunt for capital. And despite what the headlines imply, most small banks are not being eaten up by the huge institutions; rather, they're merging with banks of similar size.

According to findings from the Federal Reserve Bank, from 1993 to 1996, more than half (655) of the 1,384 small banks with assets of $250 million or less that changed ownership were acquired by banks of the same size. Another 610 were purchased by banks with assets of $250 million to $5 billion, and only 119 were bought by banks with assets exceeding $5 billion.

The report, compiled by Federal Reserve economist Nick Walraven, also found that the small banks that did the acquiring were typically more active than those banks they acquired in making small-business loans (defined as commercial and industrial loans initially in amounts of less than $1 million). That's good news for entrepreneurs. The study noted, however, that after a bank initially acquires another institution, the percentage of assets allocated to small-business loans temporarily dips and then gradually rises. In general, the picture continues to look good for small firms seeking bank loans.

Contact Sources

Dow Theory Forecast, (800) 233-5922, http://www.dowtheory.com

Federal Reserve Board, http://www.bog.frb.fed.us

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This article was originally published in the February 1998 print edition of Entrepreneur with the headline: Lighten Up.

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