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Mass. Community Banks Extend Small Business Lending Despite Economy03:13
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An Edgartown National Bank branch on Martha's Vineyard (flickr/camflan)
An Edgartown National Bank branch on Martha's Vineyard (flickr/camflan)

If you've been hearing about how banks aren't lending nowadays, don't tell that to Jim Gavin, the chief lending officer of Peoples Federal Savings Bank, which is currently building a new branch in West Newton.

"This is about 3,000 square feet," Gavin says as he surveys a half dozen workers install skylights and a second entrance with room for an ATM. He says his Brighton-based community bank is expanding because business is expanding.

"Commercial clients of ours are looking for equipment," Gavin says. "Trucks, cranes. Because they feel as though there’s an opportunity for them to buy a crane at a lower rate than they could have got a couple of years ago."

Peoples Federal has written several million dollars in small business loans in the last three months, and the community bank is not alone.

A new report out Tuesday reveals that small business lending by community banks in Massachusetts increased both during the recession, and afterward.

The report, commissioned by the Massachusetts Bankers Association, shows strong loan expansion at a time when the economy was paltry: a 5.3 percent increase in 2008 and a 6.7 percent increase in 2009.

Association President Dan Forte explains that apparent conundrum this way: Most of the growth in small business lending at community banks came at the expense of others.

"They picked up 95 percent of the loans that were lost at the out-of-state commercial lenders and the larger national banks that are here in Massachusetts," Forte says.

Community banks say that's a reflection of being more local and providing better service, but Brian Gottlob chalks it up to something else. He's from PolEcon Research in New Hampshire, and he's the one who analyzed lending records and wrote the report.

"You know, large national banks have faced some issues that smaller banks haven’t felt," Gottlob says, referring to government scrutiny.

New regulations have made things much more uncertain for big banks, and Gottlob says it’s only natural that they’re scaling back along with demand for business loans. Still, he expects bigger banks to bounce back with more competitive loans to attract those same small business customers again.

"If large banks want to win them back, that’s going to be a great situation for small businesses," Gottlob says.

The report describes the Bay State banking landscape as more competitive than other parts of the country, as evidenced by how community banks helped pick up the slack in small business lending while bigger banks were facing new pressures. Even so, lending to small businesses overall fell during the recession and thereafter, because credit card companies also pulled back their lending.

The report cites enduring gaps in lending today. Very small and new businesses, especially startups or one-person shops, still have a hard time getting any loans at all.

The report did not investigate consumer lending.

-- Here's the report (on Scribd):

http://www.scribd.com/doc/52831396/Mass-Community-Banks-Extend-Small-Business-Lending

This program aired on April 12, 2011.

Curt Nickisch Twitter Business & Technology Reporter
Curt Nickisch was formerly WBUR's business and technology reporter.

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