Small Business Lending Survey 9

SECTION 2. 

Defining and Measuring Small 

Business Lending

Despite the importance of small businesses to 

the U.S. economy and the importance to small 

businesses of credit received from banks, there is 

no comprehensive measure of bank small business 

lending. The best quantitative measure available 

consists of the amount of outstanding small 

loans to businesses and farms that banks report 

on their quarterly Call Reports to regulators (see 

box). The Call Report uses specific definitions 

that are standard across banks and across time 

periods. Moreover, the definitions result in numbers 

that are accurate for what they are counting and 

are frequently used by regulators, bankers, and 

academics to describe and study small business 

lending. However, the strength of this measure—

consistency across banks—is precisely why it likely 

misses important parts of small business lending: 

banks’ definitions of small business lending may 

differ from one based solely on a specific loan size, 

and as a result, some small business lending may 

not be captured by regulatory reports. This section 

uses the survey findings to answer two important 

questions: First, what size businesses and what size 

loans do banks themselves consider to be small, 

and in that regard, do small and large banks differ? 

Second, is small business lending by banks as 

measured by the Call Report understated and, if so, 

to what extent? 

Specifically, this section investigates the small 

commercial and industrial (C&I) loans to businesses 

captured by the Call Report, defined as outstanding 

C&I loans of $1 million or less at the time of 

origination. This report refers to this component 

of the Call Report as the “Call Report proxy” for 

bank small business C&I lending. While most 

policymakers, bankers, and academics would agree 

that firms receiving loans under the $1 million 

mark are small, the concern is that the proxy fails to 

pick up C&I loans of more than $1 million made to 

businesses that the banks themselves categorize as 

small. Therefore, the survey explores whether banks 

have varied definitions of small business lending 

that deviate from the loan-size definition used by 

the proxy. Another significant concern is that the 

definition of small business lending used in the Call 

Report excludes any lending secured by residential 

real estate, even though banks commonly accept 

personal real estate as collateral for small business 

loans (as is shown in Section 5). The box referred 

to above provides a richer explanation of the Call 

Report and the types of loans it covers under small 

business lending.

2.1 Defining Small Business Borrowers: 

Banks’ Approaches

This subsection explores whether banks have 

varying definitions for whom they consider to 

be small business borrowers, and whether these 

definitions differ from the $1 million limit of the 

loan-size proxy. In particular, the coexistence 

in the U.S. banking industry of both small and 

large banks (those with assets under $10 billion 

and those with assets of $10 billion and over, 

respectively) suggests that any quantitative measure 

such as the proxy may coincide more with some 

banks’ definitions than with others’. To provide 

insight into the variations among banks in this 

regard, the survey asked banks to describe their 

small business customers and specify whether 

there are certain limits by which they define small 

business customers and loans. 

One might expect that a bank’s approach to lending 

would affect its perception of its small business 

borrowers. For example, if small banks as a group 

are relationship lenders, as they are commonly 

believed to be, then individual small banks are more 

likely to develop a fuller picture of their borrowers 

by taking into account qualitative information in 
10 FEDERAL DEPOSIT INSURANCE CORPORATION

Section 2

The Call Report Measurement of Small Business Lending by Banks

“Call Report” refers to the Consolidated Report 

of Condition and Income that every U.S. bank 

is required to submit to regulators each quarter. 

The instructions for Schedule RC-C Part II 

define loans to small businesses and small farms 

as the sum of (a) the outstanding commercial 

and industrial (C&I) loans of $1 million or less 

at the time of origination, (b) the outstanding 

commercial real estate loans with origination 

amounts of $1 million or less, and (c) the 

agricultural production and farmland loans of 

$500 thousand or less. The FDIC’s Small Business 

Lending Survey focused exclusively on small 

business C&I lending captured in (a), which in 

this report is referred to as the “Call Report proxy” 

(or “loan-size proxy”).

The quantitative limit of the Call Report 

proxy with regard to C&I lending reflects the 

assumption that the borrowers of loans under 

$1 million are businesses that are small. Because 

of the high correlation between loan size and 

business size, in the early 1990s regulators 

adopted the $1 million loan limit as a proxy 

definition of small business. However, since 

that time, the limit has never been adjusted for 

inflation; if it had been, in December 2015 it 

would have been over $1.6 million.a As a result, 

the probability is high that loans of greater than $1 

million are extended to small businesses but are 

not captured by the proxy.

The proxy uses loan size as the criterion rather 

than borrower size because all banks track loan 

size but not all banks track business size.b The 

value of using information that banks already 

record was reaffirmed during the survey 

development phase, when FDIC researchers 

visited 40 banks of various sizes, serving various 

geographic markets across the United States, to 

discuss their ability to provide the information 

sought. The initial draft of the survey contained 

multiple questions asking banks to provide data on 

C&I loans by both purpose and size of firm. The 

interviews, however, revealed that many banks, 

particularly smaller ones, do not track much 

information in their core data systems about the 

borrower other than loan amount for the small 

business loans. As a result, many were not able to 

report loans by size of small business (for example, 

as measured by firm gross annual revenue) 

without substantial investments of staff resources. 

Aside from limiting “small business lending” by 

dollar amount, the proxy places a nonquantitative 

restriction on what is included under small 

business C&I lending. Loans secured by real 

estate are recorded in the Call Report by their 

primary collateral rather than by purpose, and 

the Call Report therefore considers a business 

loan secured by a 1- to 4-family residential 

property to be a home mortgage rather than a 

business loan, even if the purpose is to support 

the operations of a small business. Thus, the Call 

Report small business loan proxy does not capture 

small business loans that are collateralized by the 

owner’s residence.c

a Calculations are based on the Consumer Price Index for All Urban Consumers (CPI-U) of the Bureau of Labor Statistics.

b See 57 Fed. Reg. 54165 (Nov. 17, 1992) 54235-54239. https://cdn.loc.gov/service/ll/fedreg/fr057/fr057222/fr057222.pdf.

c The survey questions did not focus on the two other Call Report components that capture other lending that supports the 

operations of small businesses: (b) commercial real estate loans with originations less than or equal to $1 million, and (c) 

agricultural production and farmland loans with origination amounts less than or equal to $500,000.
 Small Business Lending Survey 11

Section 2

addition to quantitative measures. By contrast, if 

large banks as a group are transactional lenders, as 

they are commonly believed to be, then individual 

large banks are more likely to view small business 

borrowers in more strictly quantitative terms in 

order to quickly compare the borrower’s information 

with the predetermined quantitative limits set for 

specific loan programs. This difference in approach 

could lead to substantial differences in what the two 

sizes of banks consider to be their small business 

customers and their small business loans.8 As Figure 

2.1 illustrates, there are in fact substantial differences 

between small and large banks in how they describe 

their small business customers. 

Figure 2.1 shows the shares of small banks and large 

banks that describe their small business borrowers 

using answers that fall within one or another of ten 

broad categories.9 The particular survey question 

was an open-ended one asking banks to describe 

their small business borrowers. Large banks 

generally describe their small business borrowers in 

terms of specific financial characteristics, especially 

revenue or sales, whereas small banks display much 

greater diversity of opinion about what makes a 

business “small.” Here and throughout this report, 

differences discussed between different sizes of 

banks are statistically significant at the 10 percent 

level at least, and typically at higher levels of 

precision than 10 percent.

As the figure indicates, the overwhelming majority 

of large banks (78.9 percent) use revenue or sales to 

characterize their small business borrowers, and some 

also mention loan size or aggregate loan exposure 

(26.9 percent and 21.0 percent) as a defining feature of 

small businesses. Large banks limit their descriptions 

to a few key, measurable financial concepts, 

which is consistent with a more quantitative—or 

transactional—approach to small business lending.

Although revenue or sales is the most commonly 

referenced concept for small banks, more than half 

of small banks do not consider revenue or sales in 

their description of their small business customers. 

8 For a fuller discussion of the differences between relationship and transactional small business lending, see the box in Section 1.

9 More than 50 distinct concepts were mentioned that were aggregated into these 10 categories. In addition to describing their 

small business customers, some banks also referenced characteristics of their own bank in the response, or responded that all 

(or none) of their business lending is to small businesses. 

Further, only very small shares of small banks 

consider loan size or loan exposure to be a defining 

feature of their small business borrowers. Instead, over 

a quarter (26.1 percent) of small banks see ownership 

structure (for example, whether a company is owner 

operated, closely held, or a “mom-and-pop shop”) as 

an important defining feature of small businesses. 

In addition, between 10 and 20 percent of small 

banks discuss number of employees, business focus 

(for example, if the business has a “local footprint,” 

is “involved in the community,” or needs “personal 

attention”), or owner characteristics (for example, if 

the owner is “local” to the community, “wears many 

hats,” or is active in daily operations). 

The differences between small and large banks in 

how they define their small business customers are 

further illustrated by their responses to specific survey 

questions asking about their use of either aggregate 

loan exposure (ALE) or gross annual revenue (GAR) 

as quantitative limits for defining small businesses. 

Figure 2.2 shows the shares of small and large banks 

that indicate they use such limits. The responses are 

analogous to the open-ended responses that described 

their small business borrowers: a substantial majority 

of large banks use either aggregate loan exposure (70.3 

percent) or gross annual revenue (61.8 percent) as a 

limit to define small businesses, whereas only 20.4 

percent of small banks define small businesses by a 

GAR limit and an even smaller share (14.7 percent) 

use an ALE limit. 

Small banks’ lack of reliance on strict firm-revenue 

limits combined with their use of more diverse and 

generally less quantifiable concepts to describe their 

small business customers suggests that small banks 

have a more varied view of their small business 

borrowers, consistent with a greater reliance on 

relationship lending methods. The heavy use of 

limits by large banks, particularly ALE limits, 

suggests that the current Call Report definition of 

small business C&I lending by loan size may be 

more in sync with these banks, provided the proxy is 

close to the limits they use. 
12 FEDERAL DEPOSIT INSURANCE CORPORATION

Section 2

Therefore, to compare how well banks’ quantitative 

limits coincide with the proxy limit of $1 million, 

the survey investigated the sizes of the limits banks 

use in practice. The results appear in Figure 2.3. 

For the banks that use ALE limits, Panel A reports 

the shares of small and large banks that use one or 

another of three particular dollar limits. The fact 

that the limits used are often lower than or equal 

to the $1 million used by the Call Report proxy 

suggests that for banks that do use ALE limits, the 

proxy definition is a reasonable approximation of 

their practices. Specifically, of the banks that use 

limits, nearly 70 percent of small banks and nearly 

60 percent of large banks use a limit equal to or less 

than $1 million. However, of the large banks that 

use an ALE limit—and large banks are those most 

Figure 2.1: Percentage of Banks That Reference These Characteristics When Describing Small 

Business Borrowers

Source: SBLS Question 1.

Notes: Entries marked with a 

“w” indicate that the number of 

responses falls below the allowable 

reporting threshold for protecting 

respondents’ identities. At the 

statistical significance of 10 percent, 

“*” denotes that small banks are 

more likely than large banks to use 

this characteristic to describe small 

business borrowers; “+” that large 

banks are more likely than small 

banks. “Characteristics” categories 

aggregate individual bank responses 

to an open-ended question; results 

will not sum to 100.0 percent.

0.0

w

w

w

0.0

9.5

21.0 +

26.9 +

15.6

78.9 +

1.3

1.7

10.8

16.1

18.8

26.1*

3.3

6.5

10.9

47.9

0.0 20.0 40.0 60.0 80.0 100.0

Loan Purpose

Borrower Creditworthiness

Owner Characteristics

Business Focus

Number of Employees

Ownership Structure

Aggregate Loan Exposure

Loan Size

Financial Health

Revenue or Sales

Small Large

Financial Characteristics

Business Characteristics

Figure 2.2: Percentage of Banks That Use a Maximum Allowable Limit for Either of These 

Financial Measures to Define Small Business Lending

Source: SBLS Questions 3 and 4.

Notes: At the statistical significance 

of 10 percent, “+” denotes that large 

banks are more likely than small banks 

to use this maximum allowable limit to 

define small business.

61.8 +

70.3 +

20.4

14.7

0.0 20.0 40.0 60.0 80.0 100.0

Gross Annual Revenue

Aggregate Loan Exposure

Small Large
 Small Business Lending Survey 13

Section 2

likely to use ALE to define small business lending—a 

substantial share (41.8 percent) set their ALE limit 

above $1 million, which indicates that there is small 

business lending made by banks which is not fully 

captured by the Call Report proxy.10

The survey results also show that of banks that use 

a GAR limit to define a small business, nearly all 

use a limit of $1 million or more. Figure 2.3, Panel B, 

shows that of small banks that use a GAR to define a 

small business, only 6.1 percent set their maximum 

limit below $1 million, and of large banks, none 

do. Panel B also shows that of banks that use a GAR 

limit, majorities of both sizes set it above $1 million. 

Therefore, nearly all banks that use a GAR limit to 

define a small business agree that at least businesses 

with a GAR of $1 million or less are small businesses. 

In fact, 27.1 percent of small banks and 56.4 percent 

of large banks that use a GAR limit even set it at $5 

million or more.

2.2 Measuring Small Business Lending 

(I): Loans That Exceed the Proxy Limit

As just noted, the definitions that banks set for small 

business loans are often paired with amounts that 

are above the $1 million limit of the Call Report 

proxy. This loan amount discrepancy between banks’ 

practices and the proxy is a potential source of the 

proxy’s understatement of small business lending. To 

explore this source of potential understatement, the 

survey asked banks about the quantity of outstanding 

loans of different origination amounts made to 

businesses of different sizes, as measured by the 

businesses’ GAR. The information is used to calculate 

the fraction of C&I loans above the proxy limit 

that are made to businesses considered to be small. 

Because of data constraints, results can be reported 

only for banks with $1 billion to $10 billion in assets.11

The survey finds (as just noted, only for banks with 

$1 billion to $10 billion in assets) that a substantial 

share of the outstanding C&I loans greater than 

10 It should be noted, however, that slightly over one-fifth of large banks that use an ALE limit use limits under $1 million, which 

could potentially indicate overreporting of small business lending. 

11 Because of the limitations of the core data systems at most banks with less than $1 billion in assets, only banks with more than 

$1 billion in assets were asked these questions in the survey. Unfortunately, however, the number of banks with assets greater 

than $10 billion that answered these questions falls below the reporting threshold for protecting respondents’ identities. 

$1 million—loans not captured by the proxy—are 

made to businesses with GAR of $1 million or less 

that are generally understood to be small (Figure 

2.3, Panel B, shows that virtually all banks that use 

GAR limits use one of $1 million or above). Figure 

2.4 presents, for Q4 2015, the ratio of outstanding 

C&I loans originated at amounts greater than $1 

million allocated by the borrower’s GAR, to total 

outstanding C&I loans originated at amounts greater 

than $1 million. For these banks, 21.2 percent of all 

loans originated at amounts greater than $1 million 

are made to businesses with a GAR of $1 million 

or less. An additional 38 percent of these loans 

are made to businesses with a GAR of between $1 

million and $10 million. Given that the GAR limits 

used by some banks to define small businesses are 

above $1 million, it is very likely that the share of 

loans over $1 million made to businesses with a GAR 

of between $1 million and $10 million also includes 

loans to small businesses. Thus, for banks with 

assets between $1 billion and $10 billion, at least onefifth and possibly more than one-half of the loans 

they originated above the proxy limit are actually 

made to small businesses.

2.3 Measuring Small Business Lending 

(II): Loans by Banks That Specialize 

Their C&I Loans to Small Businesses 

Small business lending at amounts over the $1 

million mark made by banks with under $1 billion 

in assets was explored as well. The established 

understanding of small business lending is that 

small banks (banks with assets under $10 billion) 

focus most of their C&I lending on small businesses. 

This may be partly because the relationship 

lending orientation of small banks gives them an 

informational advantage in small business lending, 

compared with large banks. In addition, very small 

banks may not have the resources to meet the 

credit needs of larger businesses without taking 

on excessive risk. Thus, if these banks indeed lend 
14 FEDERAL DEPOSIT INSURANCE CORPORATION

Section 2

almost exclusively to small businesses, the loan-size 

proxy would understate small business lending at 

small banks—and in fact, the Call Report shows 

that over one-half of outstanding C&I loans in Q4 

2015 made by banks with less than $1 billion in 

assets were originated at amounts greater than the 

proxy limit of $1 million. To provide insight into 

this possible source of understatement by the proxy, 

the survey included a simple yes or no question, 

12 The wording of this question was informed by the discussions with the 40 banks interviewed during the survey development 

phase. Few were willing to respond affirmatively to a question that asked if “all” of their C&I lending was to small businesses 

because they were concerned that there might be a small number of loans that did not fit their small business definition and they 

did not want to misrepresent themselves to a bank regulator. Modifying the question using the words “largely all” instead of “all” 

assuaged the banks’ concerns. 

answered by banks of all sizes, on whether the bank 

considers “largely all” of its C&I lending in 2015 to 

have been made to small businesses.12

The established understanding that small banks 

specialize in small business lending is supported 

by the findings of the survey, which show that an 

overwhelming majority—86.4 percent—of the 

smallest banks (banks with less than $250 million 

in assets) make C&I loans almost exclusively to 

Figure 2.3: Percentage of Banks That Use These Limits to Define Small Business Lending 

Sources: SBLS Questions 3A and 3B.

Notes: Banks that responded “yes” to 

using maximum allowable limits for 

either of these two measures in order 

to define small business lending were 

asked the amount of the limit they 

used. At the statistical significance 

of 10 percent, small banks are more 

likely than large banks to use an 

aggregate loan exposure (ALE) limit of 

less than $1 million and to use a gross 

annual revenue (GAR) limit of exactly 

$1 million; large banks are more likely 

than small banks to use a GAR limit of 

greater than $5 million.

A. Aggregate Loan Exposure B. Gross Annual Revenue

37.7

22.0

31.9

36.3

30.5

41.8

0.0

20.0

40.0

60.0

80.0

100.0

Small Large

< $1M = $1M > $1M

6.1

39.7

15.3

27.1

28.2

27.1

56.4

0.0

20.0

40.0

60.0

80.0

100.0

Small Large

< $1M = $1M > $1M to <= $5M > $5M

Figure 2.4: Percentage of Total Outstanding C&I Loans of $1 Million or More at Origination, by 

Borrower’s Gross Annual Revenue, 2015 Q4 

(Banks with $1 Billion to Less Than $10 Billion in Assets)

Source: SBLS Question 14.

Notes: Question 14 was asked only 

of banks with assets of greater than 

$1 billion, because of the limitations 

of core data systems encountered 

at smaller banks during the survey 

development phase. However, the 

number of responses from banks 

with assets greater than $10 billion 

falls below the allowable reporting 

threshold for protecting respondents’ 

identities.

21.2

38.0

40.7 <= $1M

> $1M to < $10M

>=$10M

Borrower GAR:
 Small Business Lending Survey 15

Section 2

small businesses (see Figure 2.5). Of banks with 

assets between $250 million and $1 billion, more 

than three-quarters (76.5 percent) also say that their 

C&I loans are almost exclusively to small businesses. 

On the basis of these results, one simple way to 

comprehensively capture small business lending by 

banks with assets of less than $1 billion would be 

to count their entire C&I loan portfolio, regardless 

of the size of the original loan amount.13 Doing 

so would have increased by around 75 percent the 

amount of small business lending reported for these 

banks in the Q4 2015 Call Report proxy.14

Larger small banks (banks with assets between $1 

billion and $10 billion) are much less likely to be as 

overwhelmingly small-business oriented in their C&I 

lending. Although a substantial share (37.0 percent) 

of these banks do make largely all their C&I loans 

to small businesses, that constitutes a 40 percentage 

point or more drop compared with the smaller banks. 

Overall, 78.7 percent of small banks make largely 

all their C&I loans to small businesses. The contrast 

with large banks (those with $10 billion or more 

in assets) is not surprising: only a small share (11.6 

percent) makes largely all their C&I loans to small 

13 Note, however, that this simple method is not used in the extrapolations presented in Section 2.5. That section is focused on 

extrapolating a lower bound of the understatement of small business lending by the proxy, and therefore a more conservative 

method was used.

14 Specifically, the Q4 2015 Call Report shows that the combined outstanding C&I loans for all banks with assets less than $1 billion 

totaled $108.7 billion; of that amount, $46.8 billion was originated above $1 million and $61.9 billion below $1 million. 

businesses. As banks grow in size, the decreasing 

shares of banks that focus their commercial lending 

on small businesses is consistent with the established 

understanding that smaller banks specialize their C&I 

lending to small businesses.

2.4 Measuring Small Business Lending 

(III): Loans Secured by Residential 

Mortgages 

A second potential source of the proxy’s 

understatement of small business lending involves 

the use of residential mortgages to secure small 

business loans. The Call Report small business C&I 

loan proxy does not capture small business loans 

that are collateralized by the owner’s residence.

Loans secured by real estate are recorded in the 

Call Report by their primary collateral rather than 

by purpose. Thus, the Call Report considers a loan 

secured by a 1- to 4-family residential property to 

be a home mortgage rather than a business loan, 

even if the purpose is to support the operations of a 

small business. The survey provides an opportunity 

to investigate any understatement of small business 

Figure 2.5: Percentage of Banks That Make “Largely All” of Their C&I Loans to Small Businesses

Source: SBLS Question 2.

Notes: At the statistical significance 

of 10 percent, “‡‡” denotes that 

banks with less than $250 million in 

assets are more likely than banks with 

$250 million to less than $1 billion in 

assets and more likely than banks 

with $1 billion to less than $10 billion 

in assets to make “largely all” of their 

commercial and industrial (C&I) loans 

to small businesses; “‡” that banks 

with $250 million to less than $1 billion 

in assets are more likely than banks 

with $1 billion to less than $10 billion 

in assets; “*” that small banks are 

more likely than large banks.

B. All Banks

78.7 *

11.6

0.0

20.0

40.0

60.0

80.0

100.0

Small Large

A. Small Banks

86.4‡‡

76.5‡

37.0

0.0

20.0

40.0

60.0

80.0

100.0

< $250M $250M to 

< $1B

$1B to 

< $10B
16 FEDERAL DEPOSIT INSURANCE CORPORATION

Section 2

lending that may be due to the use of personal real 

estate as collateral.15

Personal residential property is in fact an important 

source of collateral for small business lending. 

For many households, the most valuable asset is a 

home, and the equity may be used by small business 

owners to secure a business loan.16 There is evidence, 

both in the survey and elsewhere, that for banks and 

small businesses alike, the acceptance (by banks) 

and use (by small businesses) of 1- to 4-family 

residential properties for collateral is common. 

Section 5 of this report shows that a majority of 

banks, particularly small ones, commonly accept 

1- to 4-family residential properties as collateral for 

small business loans, and other studies estimate 

that over one-third of small businesses use personal 

assets to secure loans.17

For small banks—and particularly for the smallest of 

the small—the findings of the survey show that C&I 

loans secured by 1- to 4-family residential properties 

are an important part of the overall C&I portfolio. 

Banks of all sizes were asked for the volumes of their 

total C&I originations and for their C&I originations 

15 In this report, all C&I loans that are secured by 1- to 4-family residential properties are assumed to be loans to small businesses, 

on the basis that large firms are not considered likely to use these assets as collateral.

16 See tables 5 and 8 of Federal Reserve System, Board of Governors, 2016 Survey of Consumer Finances, https://www.federalreserve.gov/econres/files/scf2016_tables_public_real_historical.xlsx.

17 See Federal Reserve System, “Report on Employer Firms,” Small Business Credit Survey, April 2017, https://www.newyorkfed.

org/medialibrary/media/smallbusiness/2016/SBCS-Report-EmployerFirms-2016.pdf.

secured by 1- to 4-family residential properties for the 

calendar year 2015. Figure 2.6 presents the ratio of 

C&I originations secured by 1- to 4-family residential 

properties to total C&I originations, which indicates 

whether the proxy may not capture small business 

C&I lending for the reason that the loan is secured 

with personal residential collateral. Overall, just 

over 6 percent of the C&I loan originations made by 

small banks are secured by 1- to 4-family residential 

properties. Such loans make up a much smaller part of 

large banks’ C&I lending—only 1 percent. 

Among all small banks, the use of 1- to 4-family 

residential properties as small business lending 

collateral is correlated with size: those loans make up 

nearly 15 percent of the C&I portfolio of banks with 

less than $250 million in assets, but only 3.1 percent 

of the portfolio of banks with $1 to $10 billion in 

assets. This relationship between bank size and 

C&I lending secured by 1- to 4-family residential 

properties likely reflects the findings presented 

above that the smallest banks are more likely than 

larger small banks to specialize their C&I lending to 

small businesses. In addition, as discussed further in 

Figure 2.6: Percentage of Total C&I Originations Secured by 1- to 4-Family Residential Properties

Source: SBLS Questions 8 and 9.

Notes: At the statistical significance 

level of 10 percent, “‡‡” denotes that 

banks with less than $250 million in 

assets are more likely than banks with 

$250 million to less than $1 billion in 

assets and more likely than banks 

with $1 billion to less than $10 billion in 

assets to have their total C&I loans to 

small businesses be secured by 1- to 4- 

family residential properties; “‡” that 

banks with $250 million to less than $1 

billion in assets are more likely than 

banks with $1 billion to less than $10 

billion in assets; “*” that small banks 

are more likely than large banks.

B. All Banks

6.1 *

1.0

0.0

20.0

40.0

60.0

80.0

100.0

Small Large

A. Small Banks

14.7‡‡

9.3‡

3.1

0.0

20.0

40.0

60.0

80.0

100.0

< $250M $250M to 

< $1B

$1B to 

< $10B
 Small Business Lending Survey 17

Section 2

Section 5, small banks (banks with assets under $10 

billion) are somewhat more likely than large banks 

to accept personal real estate as collateral for small 

business lending.

2.5 Extrapolating a Lower Bound on the 

Proxy’s Understatement of Small 

Business Loans

As the introduction to this section explains, the 

survey investigates whether the best available 

measure of small business C&I lending—the Call 

Report proxy—understates actual bank lending to 

small businesses in two ways. The survey results 

show, first, that the proxy does not capture loans 

to small businesses that are originated at amounts 

above $1 million and, second, that it does not 

capture loans that are secured by residential 

real estate. To extrapolate a lower bound for the 

understatement produced by these two exclusions 

from the proxy, the survey’s nationally representative 

estimates are combined with the Q4 2015 Call 

Report amounts of bank C&I lending.18 It should 

be noted that since outstanding loans are a stock 

measure, the Q4 figures reflect all outstanding C&I 

loan dollars for a bank at that moment in time.19

As discussed in Section 2.2, of the outstanding C&I 

loans originated at amounts above $1 million by 

banks with assets between $1 billion and $10 billion, 

at least one-fifth were made to small businesses—

that is, businesses with GAR of $1 million or less, 

which by common agreement are considered small 

businesses. These loans are not captured by the 

proxy because they are above the proxy’s dollar 

limit of $1 million. Extrapolations presented on 

Table 2.1 using survey results and the Q4 2015 Call 

Report indicate that the lower bound of the small 

business lending understatement caused by not 

18 For the reader’s convenience, the details of how the extrapolations are calculated are provided in Appendix B. 

19 “Stock” values are snapshot values observed at a point-in-time, such as current assets and current liabilities. 

20 The lower bound extrapolation is substantially more conservative than an extrapolation using the simple method of counting 

as small business lending all C&I loans made by these banks, regardless of origination amount, as discussed in Section 2.3. The 

conservative method used in this subsection is discussed in Appendix B. If instead the simple method is applied to the bottom 

86 percent of banks with assets of less than $250 million, when ranked by total C&I lending, and the bottom 76 percent of banks 

with assets of between $250 million and $1 billion, then the Q4 2015 Call Report shows that their combined C&I lending for loans 

with origination amounts above $1 million was $16.9 billion, which generates a substantially larger potential understatement 

than the one yielded by the conservative method. 

counting outstanding loans originated above $1 

million that are made to businesses with GAR of 

$1 million or less—by banks with assets between 

$1 billion and $10 billion—is at least $19.1 billion. 

It should be noted that businesses with GAR of 

greater than $1 million that receive outstanding 

C&I loans originated with amounts greater than $1 

million can also be small businesses, but the level of 

fineness of the information collected in the survey 

does not allow for the calculation of this potential 

understatement.

In addition, the survey results discussed in Section 

2.3 show that the vast majority of the small banks 

with assets of under $1 billion specialize their C&I 

lending to small businesses. These are the banks 

with assets of less than $250 million and with assets 

of between $250 million and $1 billion. Of these 

banks, 86.4 percent and 76.5 percent, respectively, 

consider largely all of their C&I lending to be to 

small businesses. For these banks as for all banks, 

C&I loans originated at amounts of less than $1 

million are included in the proxy as small business 

lending, yet the C&I loans originated at amounts 

above $1 million are not. Combining the survey 

results and the Q4 2015 Call Report, Table 2.1 

shows that the lower bound for the understatement 

of loans originated above $1 million made by the 

two groups of the smallest banks is extrapolated 

to be $60.2 million for banks with fewer than $250 

million in assets, and $32.3 million for banks with 

assets between $250 million and $1 billion. The 

understatement is therefore extrapolated to be at 

least $92.5 million in total for banks with assets of 

less than $1 billion.20

The second source of understatement by the 

Call Report proxy, as discussed above in Section 

2.4, is that 1- to 4-family residential properties 

secure a nontrivial share of C&I loan originations, 
18 FEDERAL DEPOSIT INSURANCE CORPORATION

Section 2

particularly for banks with less than $1 billion in 

assets, yet loans secured by such properties are 

recorded on the Call Report as residential mortgages, 

even though the loan purpose is commercial and 

industrial. Table 2.1 shows that the extrapolated 

lower bound of the understatement of outstanding 

small business loans that is due to the proxy’s 

exclusion of loans secured by 1- to 4-family 

residential properties is $15.6 billion for small banks 

(under $10 billion) and $2.7 billion for large banks 

($10 billion or above), or at least $18.3 billion total for 

calendar 2015.21

The sum of lower-bound extrapolations presented 

in this subsection suggests that relying on the Call 

Report proxy understates total bank small business 

C&I lending by at least $34.8 billion for small banks 

and by $2.7 billion for large banks, for the reason 

that the proxy does not include loans to small 

businesses that either were originated at amounts 

greater than $1 million or were secured by 1- to 

4-family residential properties. The amounts of 

small business C&I lending recorded by the proxy 

in Q4 2015 totaled $121 billion at small banks and 

21 Refer to Appendix B for the assumptions used to relate the survey question to the Call Report proxy. The survey question asks 

about loan originations (a flow), whereas the Call Report proxy collects information on outstanding loan dollars (a stock). See 

footnote 19 for a definition for “stocks.” In contrast, flow values are quantities observed over a specified time period. For example, quarterly income statements contain flow values. 

$199 billion at large banks, for a combined $320 

billion. Thus, the extrapolated lower bound of total 

C&I small business loans in Q4 2015 made by small 

banks is $156 billion, or 28.8 percent larger than 

what is captured by the proxy, and by large banks, 

$201 billion, or 1.4 percent larger than the proxy. 

For the industry, the survey findings show that total 

bank small business C&I lending was likely at least 

$357 billion in Q4 2015, or 11.7 percent larger than 

the proxy. 

2.6 Conclusions

Banks are the most common source of external 

credit for small businesses, yet there is no 

comprehensive measure of small business lending by 

banks. The best existing measure of small business 

C&I lending extended by banks is the Call Report 

proxy, which uses a loan-size measure to identify 

small business lending. But banks may define small 

businesses differently from the proxy. Therefore, this 

section first reports banks’ answers to questions on 

how they define their small business customers and 

Table 2.1: Dollar Amount Understatement of Call Report Proxy for Small Business Lending, 2015 

(Extrapolated Lower Bound)

Areas of Understatement

Small Banks All Banks

<250M 250M to 

<1B

1B to <10B Small Large Total

Unsecured C&I Loan Dollars with Origination 

Amounts of Greater $1 Million to Businesses with 

Gross Annual Revenues of:

$1 Million or Less

$60.2M $32.3M

$19.1B

$19.2B

Not 

Availableψψ

$19.2B

Greater than $1 Million

Not 

Availableψ

Not 

Availableψ

Secured by 1- to 4-Family Residential Properties, 

Actually for C&I Loan Purposes $4.4B $6.5B $4.8B $15.6B $2.7B $18.3B

Total $4.5B $6.6B $23.9B $34.8B $2.7B $37.5B

Notes: ψ Extrapolations for the lower bound of the part of the understatement of small business loans that is due to the proxy’s 

exclusion of loans with origination amounts of greater than $1 million to businesses with gross annual revenues of greater than $1 

million cannot be calculated because it is unknown what portion, if any, of these loans is made to businesses that banks consider to 

be small. ψψ The number of large banks that answered the questions used for the extrapolations falls below the allowable reporting 

threshold for protecting respondents’ identities.
 Small Business Lending Survey 19

Section 2

small business loans. Then, if the answers to these 

questions indicate there is small business lending 

that the proxy does not capture, the section analyzes 

specific areas of uncaptured lending. Finally, the 

section extrapolates to derive the lower bound of the 

understatement. 

The survey shows that small and large banks differ 

in how they define small businesses. As expected, 

small banks draw on many different characteristics, 

including those that are qualitative, whereas large 

banks rely primarily on the size of the loan and the 

revenue of the firm. And of the small share of small 

banks and large share of large banks that use specific 

limits to define their small business loans, substantial 

portions use limits of greater than $1 million. Thus, 

the survey provides evidence that the best existing 

measure of bank small business C&I lending, the 

Call Report proxy, is unable to fully capture all 

loans made to small businesses. In addition, the 

survey documents that portions of banks’ C&I loan 

originations are secured by personal real estate, 

which demonstrates another way in which the proxy 

understates small business lending. 

The survey finds that the vast majority of small 

banks with assets of less than $1 billion consider 

largely all of their C&I lending to have been made 

to small businesses—a finding that confirms the 

common understanding that these banks specialize 

this lending to small firms. These are also the banks 

most likely to have their C&I loans secured by 

residential real estate. Both findings show that the 

proxy potentially understates the contribution of the 

smallest banks to small business lending relatively 

more than it understates the contribution of other 

banks. Thus, the understatement that the survey is 

able to document reinforces the importance not only 

of banks generally, but more particularly of small 

banks, as providers of small business credit in the 

United States. A conservative estimate shows that in 

Q4 2015, small banks held at least 28.8 percent more 

outstanding loan dollars to small businesses than 

the Call Report proxy captured, whereas large banks 

held at least 1.4 percent more.

In sum, the survey results document that the Call 

Report proxy substantially understates the true 

amount of small business lending by banks. A 

lower-bound estimate of the understatement based 

on the survey results indicates that for calendar 

year 2015, the proxy is at least 11.7 percent below 

the actual volume of small business C&I lending 

extended by all banks.