The Small Business Administration recently began posting a list of banks making America’s Recovery Capital loans. The list, which is supposed to be updated weekly and is available here, makes for both interesting and depressing reading.

Depressing, first, because it’s not very long. As I report today in an article about one restaurant owner’s (ultimately unsuccessful) effort to secure an A.R.C. loan, just 405 banks had made 1,127 loans as of Monday. (The list, published Tuesday, is slightly more current, and shows that banks have made 1,191 loans.) Recall that at the outset, some people predicted that the money would run out by the end of September.

Also depressing because most of the names on the list will be unfamiliar to most readers. JPMorgan Chase is on the list, as are Wells Fargo and SunTrust. But from there, the national brands trail off. Of the 25 largest banks in the U.S. — which together control two-thirds of all bank assets — only eight have made an A.R.C. loan.

The prediction made by Tony Wilkinson, president of the National Association of Government Guaranteed Lenders, that banks would face a public relations problem if they didn’t participate, appears not to have come to pass — or at least banks are willing to absorb the bad P.R. as the cost of not doing business. Despite that early claim, the major bank absence will not come as a surprise to Agenda readers, many of whom have complained about how difficult it has been to get an A.R.C. loan.

But this next tidbit might surprise. It turns out that fully a third of the banks making A.R.C. loans — and one-third of the loans they’ve made — are in three states: Minnesota, Wisconsin and Iowa. Seventy-four of the more than 400 of A.R.C.-loaning banks are in Minnesota, 49 are in Wisconsin. Thirty-three are in Iowa. To put that in perspective: more banks in Iowa have made loans than in California, New York and Florida combined (together, however, the banks in the three big states made 77 loans to Iowa’s 57.)

The S.B.A. itself is at a loss to explain the disparity. Judith Roussel, the Illinois district director who is the acting administrator for the region that includes Wisconsin and Minnesota (as well as a tie for the fourth best-producing state, Ohio, and the sixth, Illinois) could shed little light. “I know in Illinois we have been very aggressively reaching out, and we’ve had a level of success, but banks are getting on board at different paces,” Ms. Roussel ventured.

“We have a very intensive lender contact program,” said Joseph Folsom, Iowa’s district director. “Our goal is to have a personal contact with every institution at the main bank level at least once a year. Keep in mind, there are nearly 400 banks and over 100 credit unions.” But, he allowed, the initiative is just as intensive in next-door Nebraska, where only 12 banks have made loans.

Lt. Gov Barbara Lawton of Wisconsin was happy to claim some credit. She called The Agenda on Tuesday after hearing we’d been poking around. “One of my concerns in the context of this economic crisis is that small businesses were feeling left out of the Recovery and Reinvestment Act,” she said. But she took note of its many provisions to bolster S.B.A. lending. “And because all of it is first-come, first-served,” she continued, “I thought my job is to make sure that Wisconsin businesses get at least their fair share.”

Ms. Lawton held road shows in cities and towns across the state, bringing together mayors and other elected officials, bankers, local chambers and businesses that found capital through various S.B.A. programs. “Our job,” she maintained, “is to get this story out.”

It’s also possible the disparity has less to do with outreach and more to do with the type of banks making these loans. A.R.C. lenders in Iowa “know their customer base, and know which customers will benefit from the program,” said Mr. Folsom. “And these businesses are usually located right down the street.”

Mr. Folsom was of course describing the archetypal community bank, known for practicing “relationship lending.” The swath of Midwestern and North Central states from Ohio and Michigan to Kansas, Nebraska and the Dakotas account for 44 percent of all community banks (and just over half the lenders and loans), according to the Independent Community Bankers of America, the trade association.

By contrast, the 12 westernmost states are home to about as many people (nearly a quarter of the U.S. population) but to just 10 percent of independent banks. Similarly, the nine Northeastern states, with 18 percent of the population, have just 9 percent of these banks. (One anomaly on the list: Utah is third in the nation for number of loans, with 66. However, most of those loans were made by one institution, Zions Bank of Salt Lake City, an early and enthusiastic participant in the program.)

More specifically, Mr. Folsom is describing rural community banks. S.B.A. district directors in both Iowa and Minnesota said that few loans had been made in urban areas — as of last week, none had as yet been made in Des Moines, Iowa’s largest city, according to Mr. Folsom. All community banks like to say they know their customers, but said Paul Merski, the I.C.B.A.’s chief economist, “it’s just a closer relationship in the smaller towns and cities.”

And yet even that cannot fully explain the disparity. Minnesota is actually not the leader in community banking; Illinois, with 653 institutions, and Texas, with 645, each have nearly 50 percent more banks. But 16 Texas banks have produced just 24 loans — not quite one-sixth Minnesota’s total — even though more people live in rural Texas than in rural Minnesota and rural Wisconsin combined.

“My guess is what’s really driving that is the herd mentality,” said Bob Seiwert, senior vice president at the American Bankers Association’s Center for Commercial Lending and Business Banking. “If you get a number of lenders in any concentrated area all of the sudden saying I’m going to offer this program, other lenders will jump on board, just so they’re not odd man out.”

In any case, if you’re thinking of applying, regardless of whether you’re located in the Upper Midwest, we have some suggestions for making the loan application go as smoothly as possible. You can read them here.

Source:  http://boss.blogs.nytimes.com/2009/08/12/want-an-arc-loan-head-to-the-heartland/