From the SBA's news desk- this should put your banker in a good and "generous" mood...

Small Business Lending Profitable For Banks

WASHINGTON, D.C. - Banks that specialize in small business lending, including large holding companies, show more return on equity than their counterparts. This finding, which contradicts the conventional wisdom that large bank holding companies find small business lending a less profitable operation, will be presented tomorrow to the Federal Reserve Bank of Chicago’s 39th Annual Conference on Bank Structure and Competition.

“Conventional wisdom says that consolidation and deregulation in the banking industry could lead to less small business lending,” said Thomas M. Sullivan, Chief Counsel for Advocacy. “But this report shows that these trends don’t have to negatively affect that lending. That’s good news for small business owners who may rely on small local banks for financing,” he said.

Authored by Dr. James Kolari of Texas A&M University, Assessing the Profitability and Riskiness of Small Business Lenders in the Banking Industry funded by the Office of Advocacy, concludes that small business lending normally either has neutral or positive effects on profitability for most banks.

Small banks have traditionally been one of the major suppliers of credit to small businesses. Concerns have grown that the deregulation and consolidation through mergers and acquisitions in the banking industry will adversely affect banks’ lending to small business. The argument is that because of higher risk and larger administrative costs per dollar of loan involved in lending to small firms, large bank holding companies will find small business lending a less profitable operation.

The report suggests that defining profitability either as return on equity or as return on assets determines whether small business lenders are more profitable than other banks. Nonetheless, under either definition, the current conventional wisdom that consolidated banks will find small business lending unprofitable does not hold up.