Banks’ community lending small, but mighty

During the past four years, as the worst financial crisis in decades hit Colorado and the nation and as banks were hammered publicly for making risky loans and bad business decisions, a small band of eight regional banks in Northern Colorado and the Boulder Valley were out making loans to the smallest of small businesses and others in their communities.

All eight of them worked hard enough that they passed the federal audit test that determines whether they are complying with what’s known as the Community Reinvestment Act.

Passed in 1977, the act was designed to help eradicate such iffy lending practices as redlining, in which some banks actually drew red lines around poor neighborhoods and refused to make loans in those areas. Under the CRA, that’s illegal. So, for the past 37 years, banks have had to rethink the way they work within their communities and how they can make viable loans even in poor areas.

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None of these Colorado banks was judged outstanding, but the fact that all were judged satisfactory is commendable, especially in such hard times.

Read our story this week. You’ll see that six of these eight banks made more than half their business loans to companies with less than $1 million in revenue, and several were making loans to businesses with annual revenue of less than $250,000. That’s small.

As one banker said wryly, on that measure it’s easy to comply with the CRA because all of the companies in their community and their mortgage customers are by definition modest in size and income. If a banker can’t figure out how to make money lending to these folks, that bank is not going to make money at all.

Is it a perfect lending world yet? Of course not. Small businesses still struggle to find start-up money and operating cash. And low–income and minority borrowers still have trouble financing their homes.

But in our neighborhood, even as some banks were failing and engaging in questionable practices, these eight held on and kept making loans to the small businesses and modest households that make up the fabric of our local economy. Good for them.