RENEE MONTAGNE, HOST:
This is MORNING EDITION from NPR News. I'm Renee Montagne.
Ever since the financial crisis began, many small businesses have struggled to get loans. One businessman in Philadelphia has a plan to help by adding some transparency to the process. He's created a website that gives every FDIC insured bank in the country a grade based on how many small businesses it loans to. NPR's Wendy Kaufman reports.
WENDY KAUFMAN, BYLINE: When small business owners start looking for money to expand, they often begin at a big bank. Those banks are highly visible and often nearby. But, says Ami Kassar...
AMI KASSAR: Certainly in my mind, and the data shows it - not the best place to start.
KAUFMAN: Kassar is the CEO of MultiFunding.com - a small business loan broker. Kassar used data from the Federal Deposit Insurance Corporation to create a website called Banking Grades. It's designed to help small business owners like and Jim and Patricia McGrath find the best loan.
The McGraths are the owners of Branches Atelier, a preschool in Santa Monica, California.
(SOUNDBITE OF CLAPPING)
GROUP: (Singing) Welcome, welcome to our circle. Welcome, welcome...
KAUFMAN: Just a dozen children fit comfortably in the current space, and the McGrath's wanted to expand. Late last year, they found the perfect site, but they needed a loan to buy the building.
PATRICIA MCGRATH: So we first approached my own bank. It's one of the large banks. And I've been banking with them for over 20 years, and it made sense that we would go with people that we knew.
KAUFMAN: They thought it would be simple - financially their business was solid, they had money for a down payment, and they'd always had a long waiting list of prospective students. Moreover, the mortgage payment on the new building wouldn't have been that much more than their rent. Still, the bank - one of the nation's very largest - turned them down cold.
MCGRATH: I was shocked. We have excellent credit, and we have money in the bank. I couldn't understand why they wouldn't be willing to give us a loan. It didn't make any sense to me.
KASSAR: Big banks, you know, they're able to go out and lend, you know, hundreds of million dollars here and there.
KAUFMAN: Again, Ami Kassar...
KASSAR: For them, these little loans are a pain. In comparison, for the smaller banks, the community banks, their business is small business lending. And that's the best choice in our opinion for small business to go to, to get a loan.
KAUFMAN: Very small loans don't produce much profit for big banks, but community banks typically have a mission beyond making money - many want to help build and enhance their communities. So it's not surprising those institutions top the banking grades list.
The metric here is the ratio of business loans of a million dollars or less compared with total domestic deposits. It's a metric the Financial Services Roundtable, which represents big banks, quarrels with, saying it doesn't consider all the factors. The group also cites efforts by large banks to increase their small business lending. Keith Weigelt, who teaches at the Wharton School, is an expert in small business finance. Here's his take on the banking grades website.
KEITH WEIGELT: If I was a small business, I would welcome that. First of all, it would save me an awful lot of time in terms of search costs.
KAUFMAN: Indeed, preschool owners Jim and Patricia McGrath say they spent an incredible amount of time and energy trying to get their loan. In addition to being turned down by their giant bank, they were strung along and then rejected by a mid-sized one. Finally they turned to a community bank, Orange County-based Plaza Bank.
MCGRATH: A wonderful bank.
KAUFMAN: There they met a banker who wanted to give them a loan and did.
MCGRATH: Ultimately if you don't get the right bank, no matter how good you look on paper, you're not going to be able to move forward with your business, and that's really unfortunate.
KAUFMAN: The McGraths are just about done painting their new building and they're working on a new play structure and a garden. They're also hiring, adding about half a dozen full time jobs.
Wendy Kaufman, NPR News.
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