Small Business Lending Survey 21

SECTION 3. 

Markets and Competition

22 See Allen N. Berger et al., “Does Function Follow Organizational Form? Evidence from the Lending Practices of Large and Small 

Banks,” Journal of Financial Economics 76, no. 2 (2005): 237–69, https://dx.doi:10.1016/j.jfineco.2004.06.003; Kenneth P. Brevoort 

and Timothy H. Hannan. “Commercial Lending and Distance: Evidence from Community Reinvestment Act Data,” Journal of Money, Credit and Banking 38, no. 8 (2006): 1991–2012, http://www.jstor.org/stable/4123041; Udell, “What’s in a Relationship?”; Kenneth P. Brevoort, John D. Wolken, and John A. Holmes, “Distance Still Matters: The Information Revolution in Small Business 

Lending and the Persistent Role of Location, 1993–2003,” Federal Reserve Board, Finance and Economics Discussion Series, 

Working Paper No. 2010-08 (March 1, 2010), http://dx.doi.org/10.2139/ssrn.1559989; and Sumit Agarwal and Robert Hauswald. 

“Distance and Private Information in Lending,” Review of Financial Studies 23, no.7 (2010): 2757–88, https://doi.org/10.1093/rfs/

hhq001.

23 The survey provided banks with nine geographical options and a write-in option. All the options were aggregated into five 

broader categories in order to meet the disclosure review thresholds for protecting respondents’ identities. These aggregations 

do not change the qualitative results. 

This section investigates the market for small 

business lending, looking at how banks view their 

geographic reach in small business lending and what 

kinds of technologies and techniques banks use to 

bridge the physical distance between themselves and 

potential small business customers. The section also 

investigates what institutions, by geography and by 

size, banks consider to be their competition. 

These questions matter because if banks have narrow 

lending areas, provide businesses with few options 

to apply for loans without visiting a branch, and do 

not consider themselves to be in competition with 

nonlocal financial institutions, many small business 

borrowers may have trouble switching to another 

lender if nearby banks or nearby bank branches close. 

Similarly, if small banks serve a substantially different 

set of customers from large banks and if banks view 

themselves as solely competing with other banks of 

similar size, small-bank customers may have trouble 

accessing credit at large banks if small banks’ number 

and lending continue to decrease. On the other hand, 

if banks view nonbank financial institutions such 

as credit unions and financial technology lenders as 

important competitors, these organizations may be 

capable of filling in the gaps created by the changing 

structure of the banking industry.

3.1 What Is Your Bank’s Geographic 

Market for Loans to Small 

Businesses?

The survey explores the geographic extent of banks’ 

small business lending markets and seeks to learn 

whether large banks tend to have wider markets 

relative to their branch footprint than small banks. 

Previous studies have shown that small businesses 

located farther away from banks are less likely to 

obtain bank loans and that the relationship between 

distance and the likelihood of obtaining bank loans 

is stronger for smaller banks as well as for younger 

businesses or those that cannot clearly demonstrate 

creditworthiness.22 The link between bank credit 

and proximity, however, may have been loosened 

by recent changes in the use of technology and the 

increasing availability of data, perhaps combined 

with the trend toward fewer small banks. Any such 

loosening would give banks a broader geographic 

market for their small business loans. 

Specifically, the survey asked banks to describe 

the general geographic area where they focus 

their resources and outreach for commercial and 

industrial loans to small businesses.23 The results 

show that small business lending remains focused 

substantially on areas close to bank locations, 

particularly for small banks. 
22 FEDERAL DEPOSIT INSURANCE CORPORATION

Section 3

Small banks have predominantly local trade areas for 

small business lending. As shown in Figure 3.1, small 

banks focus on the city where they are 

headquartered (6.5 percent), on counties containing 

or near their branches (67.3 percent), or on 

metropolitan statistical areas (MSAs) containing or 

near their branches (8.5 percent).24 Combined, 82.3 

percent of small banks selected one of these local 

options. Fewer than 10 percent of small banks focus 

their small business lending efforts on either statebased areas (8.4 percent) or at a national level (9.3 

percent). The predominantly local focus of small 

banks suggests that if all small banks exit a 

particular area, out-of-area small banks will not fill 

the local small business lending gap.

Large banks generally spread their resources across 

larger geographic areas than small banks, but a 

substantial minority is, like small banks, locallyfocused. As Figure 3.1 shows, large banks that 

describe their market area as at the state level 

constitute the largest share (42.8 percent) of large 

banks, and up to an additional 18.4 percent focus at 

24 An MSA is a geographical area with a relatively high population density at its core and close economic ties within its boundaries. MSAs may be smaller geographically than a state but may cross state lines (e.g., the Baltimore-Washington metropolitan 

statistical area).

25 The number of responses of large banks that described their market area as having a national focus did not meet disclosure 

review thresholds for protecting respondents’ identities; thus, for both large and small banks these responses were combined 

with the write-in responses describing the banks’ market areas as other than the options provided.

the national level.25 However, Figure 3.1 also shows 

that a substantial share (38.8 percent) of large banks 

consider their market to be based in a more local 

area. Among large banks, 20.5 percent consider 

their target geographic markets to be at the county 

level, and an additional 18.3 focus their efforts at the 

MSA level. Therefore, although a majority of large 

banks do not define their geographic markets at 

the level of the MSA, county, or city, the share that 

does focus small business lending efforts on these 

more local geographies is surprisingly substantial. 

This contrasts somewhat with the implications of 

the established view that large banks do not require 

proximity to their small business customers.

The overall findings suggest that the wider 

geographic focus of large banks may be able to fill 

some of the gap in small business lending that opens 

up when a small local bank closes. However, despite 

recent changes in technology and banking structure, 

location remains an important factor in small 

business lending for many banks of both sizes.

Figure 3.1: Percentage of Banks That Use This Geographic Level as Their Trade Area for Small 

Business Lending

Source: SBLS Question 15.

Notes: The survey question asks 

banks for the geographic market, 

or “trade area,” where they focus 

their resources and outreach to 

generate small business lending. 

At the statistical significance of 10 

percent, small banks are more likely 

than large banks to use a countybased geographic trade area; large 

banks are more likely than small 

banks to use an MSA or state-based 

geographic trade area.

0.0

20.0

40.0

60.0

80.0

100.0

Small Large

Headquarter City/Town

County-Based

MSA-Based

State-Based

Other, Including National

Geographic Trade Area:

9.3

8.4

8.5

67.3

6.5

20.5

18.3

42.8

18.4
 Small Business Lending Survey 23

Section 3

3.2 Where Can a Small Business Apply 

for a Loan from Your Bank?

The survey further explores the geographic extent of 

banks’ small business lending market by looking 

through the lens of where small businesses are able 

to apply for loans. The finding above that small 

banks tend to define their lending areas more locally 

than large banks suggests that the two sizes of banks 

are using different methods to reach their small 

business customers. Understanding whether in fact 

methods differ, and if so, how, may become 

increasingly relevant as branches continue to close 

and bank assets become further concentrated in 

large banks. Given the increasing use of technology 

by banks, it might be expected that banks use the 

Internet to provide greater convenience to moredistant customers. Further, since large banks are 

thought to use more technology in their small 

business lending decisions than small banks do, it 

might be expected that large banks’ greater reach is 

made possible by allowing online applications for 

small business loans.

26 The survey gave banks eight options and the ability to write in three additional answers not already listed. The responses were 

aggregated for clarity of presentation and to comply with the requirements related to protecting respondents’ identities.

27 The survey provided banks with eight possible ways and a write-in option. The difference between what large banks report and 

what small banks report is statistically significant. 

Specifically, the survey asked banks where and 

how potential small business borrowers can submit 

applications for commercial and industrial loans.26

The results suggest, surprisingly, that large banks 

for the most part extend their geographic reach 

farther than small banks through staff-timeintensive methods, with only a few large banks 

using online platforms.

Unsurprisingly, the survey finds that more than 95 

percent of both small banks and large banks accept 

applications for small business loans through their 

branches, as shown in Figure 3.2. About one-half 

of small banks also accept applications through 

phone calls (51.3 percent) and on-site visits by bank 

staff (49.4 percent). However, large banks generally 

provide their small business customers with a 

broader range of ways to submit loan applications; 

they allow, on average, 3.5 different ways in which 

small businesses can apply for loans, compared with 

2.7 different ways for small banks.27 Interestingly, the 

broader reach of large banks is driven less by use of 

the Internet and more by use of telephones and cars: 

Figure 3.2: Percentage of Banks That Allow Small Business Borrowers to Apply for Loans Using 

This Method

Source: SBLS Question 23.

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 large banks are more 

likely than small banks to allow small 

business borrowers to apply for loans 

using this method. Banks may select 

multiple answers; results will not sum 

to 100.0 percent.

w 

22.8 +

83.2 +

68.7 +

95.8 

4.2

11.2

49.4

51.3

96.5

0.0 20.0 40.0 60.0 80.0 100.0

Brokers

Online

On-site Visit

by Bank Staff

Telephone Call

by Bank Staff

At a Branch

Small Large
24 FEDERAL DEPOSIT INSURANCE CORPORATION

Section 3

large banks are 11.7 percentage points more likely 

to accept loans online than small banks, but 17.4 

percentage points more likely to accept applications 

during phone calls, and 33.8 percentage points more 

likely to accept applications during on-site visits 

by bank staff. Overall, only 22.8 percent of large 

banks accept small business applications online, 

compared with the 83.2 percent that are willing to 

via on-site visits. On-site visits have clear geographic 

limitations, so the willingness to make such visits to 

accept a loan application gives some insight into the 

continued importance of distance in small business 

access to credit.

The fact that the great majority of large banks 

provide staff-time-intensive ways for prospective 

borrowers to submit loan applications and have not 

adopted online submission of applications could 

reflect several properties of bank lending to small 

businesses. First, it may be hard for banks to adapt 

small business lending to an online environment, 

for direct human interaction appears inherent in 

the process. Even large banks, whose small business 

lending methods are shown in Sections 2 and 5 

to rely more heavily on evaluating standard data 

against preset limits, have thus far not generally 

found it worthwhile to pursue online small business 

loan applications. Second, if there is a way to make 

online small business lending profitable, there 

appears to be an opportunity for innovation by 

financial technology (FinTech) firms. To date, there 

have been few partnerships between small banks and 

FinTechs, but recent surveys have shown banks to be 

open to the possibility.28

28 See Hilary Burns, “This Fintech Partnership Could Serve as Template for Small Banks,” American Banker, April 16, 2018, https://

www.americanbanker.com/news/this-fintech-partnership-could-serve-as-template-for-small-banks; and American Bankers 

Association. “How Banks Partner with FinTech for Digital Lending.” ABA Bank Marketing. March 26, 2018, https://ababankmarketing.com/insights/how-banks-partner-with-fintech-for-digital-lending/. 

29 Stein, “Information Production”; David A. Carter, James E. McNulty, and James A. Verbrugge, “Do Small Banks Have an Advantage in Lending? An Examination of Risk-Adjusted Yields on Business Loans at Large and Small Banks,” Journal of Financial 

Services Research 25, no. 2–3 (2004): 233–52, https://doi.org/10.1023/B:FINA.0000020663.21079.d2; and Berger et al., “Does 

Function Follow Organizational Form?”

30 George W. Haynes, Charles Ou, and Robert Berney, “Small Business Borrowing from Large and Small Banks,” in Business 

Access to Capital and Credit, edited by Jackson L. Blanton, Alicia Williams, and Sherrie L. W. Rhine, 287–327, Federal Reserve System Research Conference, 1999, http://citeseerx.ist.psu.edu/viewdoc/download;jsessionid=D208864BBCA8E4D281034D453A1F3D7F?doi=10.1.1.474.279&rep=rep1&type=pdf; and Berger et al., “Function Follow Form?”

3.3 Who Are Your Bank’s Competitors? 

To investigate whether small and large banks serve 

distinct sets of small business customers, the survey 

looked at the competition these banks face. The 

evidence from the survey so far indicates that there 

is substantial geographic segmentation in the small 

business lending market. (To recapitulate: many 

banks largely lend to businesses near their branches, 

which in turn suggests that small business borrowers 

are limited to borrowing from nearby banks. Further, 

as bank branches decline in number, the local focus 

could leave small businesses with few or no feasible 

sources of bank credit. This concern may be partly 

mitigated by the fact that large banks tend to lend in 

broader areas than small banks.) In addition, there 

may also be segmentation by bank size: some small 

businesses may be better served by small banks than 

by large banks because small banks provide a more 

appropriate set of services or use a broader array of 

information to determine creditworthiness.29 Indeed, 

studies have found that small banks are more likely 

to lend to relatively smaller and younger firms and 

large banks are more likely to lend to larger and 

more mature small firms.30 If this is the case, some 

small businesses may not be able to compensate for 

the loss of a local small bank by using the services of 

a more distant large bank. 

Specifically, the survey asked banks to select which 

types of financial institutions (banks and nonbanks) 

they consider to be frequent competitors for small 

business lending, and to rank their top three 

most important competitors. If the small business 

lending market is as geographically segmented as 

the findings so far indicate it is, banks should not 

typically view banks that lack a physical presence 
 Small Business Lending Survey 25

Section 3

in their markets as competitors. And to the extent 

that there is segmentation by bank size—with 

smaller firms more likely to borrow from small 

banks, as studies have found to be the case—small 

banks would be expected to compete solely with 

other small banks and large banks with other large 

banks.31 But if, instead, most small businesses can 

be served by banks of any size, there should be more 

competition between banks of differing sizes. And if 

banks frequently view various nonbank institutions 

as important competitors, small businesses may be 

able to borrow from these organizations in the event 

they lose access to their current preferred lender. 

The survey finds that the most common and 

important competitors are other banks with a 

local branch presence, providing further evidence 

for geographic segmentation. Figure 3.3 shows the 

proportion of small and large banks that view each 

type of institution as a frequent competitor, a top 

three competitor, and its number one competitor 

(Panels A, B, and C, respectively). The overwhelming 

majority of both small and large banks (86.9 percent 

and 83.5 percent) view a local bank of some size 

as their number one competitor (Figure 3.3, Panel 

C). In contrast, nonlocal banks are seen as frequent 

competitors by only 22.1 percent of small banks 

and 32.8 percent of large banks (Figure 3.3, Panel 

A), with even fewer reporting them as top three 

competitors (Figure 3.3, Panel B), and almost no 

banks reporting nonlocal banks as their number one 

competitor (Figure 3.3, Panel C). The importance of 

nearby competitors reaffirms that physical presence 

is extremely important for small business lending, 

even for large banks. These findings are consistent 

with the finding (discussed below in Section 4) that 

large banks view their branch networks as sources of 

competitive advantage.

Banks typically view other banks of similar size 

to be their most important competitor—evidence 

consistent with segmentation by bank size in the 

small business lending market. Figure 3.3, Panel 

C, shows that nearly three-quarters of small 

31 In support of this notion, the Community Banking in the 21st Century 2017 survey finds that community banks primarily compete 

with other community banks for small business loans (defining community banks as those with $10 billion in assets or less). See 

Federal Reserve System and Conference of State Bank Supervisors, Community Banking Research and Policy Conference, October 4–5, 2017, Community Banking in the 21st Century 2017, https://www.communitybanking.org/~/media/files/cb21pub_2017_

book_web.pdf.

banks believe their number one competitor to be 

another small local bank, either banks with less 

than $1 billion in assets (53.3 percent) or banks 

with $1 billion to $10 billion in assets (20.8 percent). 

Similarly, roughly two-thirds of large banks 

view another large bank to be their number one 

competitor, with this share encompassing competitor 

banks with $10 to $50 billion in assets (20.4 percent 

of large banks) and banks with greater than $50 

billion in assets (45.0 percent). 

When competition is considered more broadly, 

however, with the focus on frequent competitors 

for small business lending (Figure 3.3, Panel A) 

and on top three competitors (Figure 3.3, Panel 

B), there is much less market segmentation by size 

and much more overlap between small and large 

banks, with large banks particularly inclined to view 

small banks as competitive threats. A substantial 

majority of large banks (69.1 percent) view even 

banks with less than $1 billion in assets as frequent 

competitors for small business lending, and slightly 

less than one-third (30.3 percent) view them as 

top three competitors. It is also not uncommon for 

small banks to see large banks—and even the largest 

banks—as competitors, with 40.0 percent viewing 

banks with more than $50 billion in assets as 

frequent competitors and 23.7 percent viewing them 

as a top three competitor. This partial segmentation 

between small and large banks suggests that there is 

a reasonably wide base of small business customers 

that are capable of borrowing from either small 

or large banks. The overlap is most noticeable in 

how banks with $1 billion to $10 billion in assets 

are viewed. Figure 3.3, Panel A, shows that almost 

every large bank—more than 95 percent—views 

these “larger” small banks ($1 billion to $10 billion 

in assets) as frequent competitors, and Figure 3.3, 

Panel B, shows that three-quarters of large banks 

(73.4 percent) view them as top three competitors. 

Majorities of small banks also view this group of 

small banks as frequent and top three competitors. 

Further, statistically equal shares of small and large 
26 FEDERAL DEPOSIT INSURANCE CORPORATION

Section 3

banks (20.8 percent and 18.1 percent) consider 

banks with $1 billion to $10 billion in assets as their 

number one competitor. 

Turning to the nonbank results, banks’ chief 

competitor among nonbanks is credit unions. Recent 

changes in the regulations governing credit unions 

have expanded the small business lending capacity 

of these institutions.32 However, credit unions are 

typically quite small, with the median credit union 

32 For example, the National Credit Union Administration adopted a new approach to and definition of member business lending; 

the new approach and definition are seen as increasing the commercial lending capacity of federally insured credit unions. See 

81 Fed. Reg. 13530–13559 (March 2016), https://www.gpo.gov/fdsys/pkg/FR-2016-03-14/pdf/FR-2016-03-14.pdf; and Robby 

Knapp, “Member Business Loans: What Credit Unions Should Focus on Right Now,” Credit Union Journal, June 20, 2017, https://

www.cujournal.com/opinion/member-business-loans-what-credit-unions-should-focus-on-right-now.

33 National Credit Union Administration, Credit Union Data Summary 2017 Q1, https://www.ncua.gov/analysis/Pages/call-report-data/reports/paca-facts/paca-facts-2017-Q1.pdf. 

having only $30 million in assets in 2017.33 They 

are also focused more on their membership, which 

is often drawn from local populations. Thus, they 

would be expected to serve small businesses that 

are much like the small businesses served by small 

banks, thereby posing greater competition to those 

banks than to large banks.

The survey largely confirms these expectations. 

Figure 3.3, Panel A, shows that a slight majority of 

Figure 3.3: Percentage of Banks That Consider This Institution a Competitor for 

Small Business Lending

Source: SBLS Question 16.

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 consider this institution a competitor for small business lending; “+” that large banks are more likely than small banks. “Nonlocal 

Bank, Any Size” is an aggregation of separate options for nonlocal banks of different sizes. “FinTech” is an aggregation of separate 

options for nonbank online lenders and marketplace lenders. See Question 16 of the SBLS for the complete list of response options 

provided. In Panels A and B, banks may select multiple answers; results will not sum to 100.0 percent.

w 

49.1 +

38.7 +

26.5

55.0

32.8

85.7 +

83.6 +

95.8 +

69.1

1.5

9.6

10.7

17.1

52.3

22.1

40.0

51.0

67.7

91.3 *

0.0 20.0 40.0 60.0 80.0 100.0

Crowd-funding

FinTech

Credit Card

Local Nonbank

Credit Union

Bank Nonlocal

Local Bank $50B

or More

Local Bank $10B

to <$50B

Local Bank $1B

to <$10B

Local Bank <$1B

Banks

Non-banks

0.0

w 

w 

w 

12.2

12.3

71.6 +

77.5 +

73.4

30.3

0.0

1.8

1.8

8.3

34.1 *

13.0

23.7

39.1

62.8

84.2 *

0.0 20.0 40.0 60.0 80.0 100.0

Small Large

0.0

0.0

0.0

0.0

w 

w 

45.0 +

20.4 +

18.1

w 

0.0

w 

w 

1.3

4.5

1.3

6.9

5.9

20.8

53.3

0.0 20.0 40.0 60.0 80.0 100.0

A. Frequent Competitor B. Top Three Competitor C. Number One Competitor

(Mark All That Apply) (Mark Only Three) (Mark Only One)
 Small Business Lending Survey 27

Section 3

both small and large banks (52.3 and 55.0 percent) 

report frequent competition with credit unions. 

However, Figure 3.3, Panel B, shows that more than 

one-third (34.1 percent) of small banks view credit 

unions as a top three competitor, compared with 

only 12.2 percent of large banks.34 Similarly, Figure 

3.4 shows that among small banks, those with less 

than $250 million in assets are about twice as likely 

as those with $1 billion to $10 billion in assets to see 

credit unions as a top three competitor (39.0 percent 

compared with 19.1 percent). This is consistent with 

the finding that banks tend to view other banks of 

similar size as their top competitors. Nonetheless, 

Figure 3.3, Panel C, shows that only 4.5 percent of 

small banks view a credit union as their number one 

competitor, implying that other banks remain the 

predominant source of competition for small banks. 

These results suggest that credit unions would be 

able to fill only a small share of any potential loss 

in access to small business credit resulting from the 

loss of local small banks.

34 The number of large banks that view credit unions as a number one competitor falls below the reporting threshold for protecting 

respondents’ identities.

35 The number of small banks that view credit card companies or FinTech firms as a number one competitor falls below the reporting threshold for protecting respondents’ identities.

Among other nonbank lenders are FinTech firms 

and credit card issuers. The availability of “big data” 

has recently prompted FinTechs to enter the small 

business lending market. Since these institutions 

generally use technology much as large banks do, 

they might be expected to be more competitive with 

large banks. 

And in fact the survey shows that FinTechs are 

considered as competitors only for large banks, but 

only as frequent competitors, not as top competitors. 

Figure 3.3, Panel A, shows that only about one 

in ten small banks view FinTechs and credit card 

issuers as frequent competitors, while Figure 3.3, 

Panel B, shows that fewer than 2 percent consider 

each (FinTechs and credit card issuers) a top three 

competitor.35 In comparison, sizeable numbers of 

large banks list FinTech and credit card issuers 

among their frequent competitors (49.1 percent and 

38.7 percent)—likely because these institutions lend 

in an even more transactional manner than large 

banks, relying almost exclusively on hard data and 

Figure 3.4: Percentage of Banks That Consider Credit Unions to Be a Top Three Competitor for 

Small Business Lending 

(Small Banks Only)

Source: SBLS Question 16.

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 consider a credit union to be a top 

three competitor; “‡” 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.

39.0‡‡ 

29.5‡ 

19.1

0.0

20.0

40.0

60.0

80.0

100.0

< $250M $250M to < $1B $1B to < $10B
28 FEDERAL DEPOSIT INSURANCE CORPORATION

Section 3

automated technologies. This view of FinTech and 

credit card issuers as frequent competitors of large 

banks dovetails with the results reported in Section 

5.1 showing that two-thirds of large banks offer 

credit cards as one of their loan products for small 

business customers. Thus, these large banks are 

setting themselves up for direct competition with 

credit card issuers. However, almost no large banks 

view FinTechs or credit card issuers as a top three or 

number one competitor.36 Thus, while FinTechs may 

eventually reshape the lending landscape, they are 

not currently viewed as a major competitor, and their 

ability to mitigate any loss to small businesses’ access 

to credit if the number of local small banks were to 

decrease would be minimal.

3.4 Conclusions

This section finds that banks compete locally and 

largely use traditional “technologies” such as the 

brick-and-mortar branch, the car, and the telephone 

as conduits for loan applications from small 

businesses. Large banks are more willing to make 

use of off-site approaches than small banks, likely 

contributing to their larger lending areas. Many of 

these larger organizations, however, remain locallyoriented, and all banks view other local banks as 

their most important and most frequent competitors. 

The results support previous findings that physical 

distance is a key component of small business 

lending, so that from the perspective of small 

businesses, the country largely remains segmented 

into a series of local lending markets rather than 

constituting a single, integrated market. The recent 

36 The number of large banks that view credit card companies or FinTech firms as a top three or number one competitor falls below 

the reporting threshold for protecting respondents’ identities.

decline in the number of bank branches across the 

country may therefore create significant problems 

for small businesses’ access to credit if the decline 

means that small businesses are left with a greater 

distance to the nearest bank branch.

In terms of competition between banks, there is 

evidence that small and large banks have a partly 

overlapping small business clientele. The fact that, 

to some extent, small and large banks consider 

themselves to be in frequent competition with the 

other for small business borrowers suggests that many 

small businesses are capable of borrowing from either 

type of bank. At the same time, however, the fact 

that banks’ main competitor tends to be a similarly 

sized bank suggests that small and large banks 

offer somewhat differentiated services that appeal 

to distinct groups of customers. Thus, the degree to 

which small businesses are able to substitute large 

banks for small ones will determine how much credit 

disruption small businesses may face as consolidation 

in the banking industry continues.

Many banks experience some competition in small 

business lending from emerging nonbank financial 

institutions, but few banks consider these to be 

among their most important competitors. Small 

banks are more concerned than large banks about 

credit unions, while large banks view both credit 

unions and FinTech firms as competition. This 

suggests that, in the absence of significant growth, 

nonbank institutions will have only a limited ability 

to fill any gaps in small businesses’ access to credit 

that result from the trend toward fewer small banks 

and fewer bank branches.