I previously wrote that Banks do not lend to small businesses, so some readers may be wondering what, exactly, do banks do?

Let’s approach this by process of elimination:

They don’t make small-business loans. Unless bribed by the SBA through a guaranty of 75% of the loan.

They don’t originate home mortgages. That’s for mortgage banks (currently suffering for this folly.)

They don’t make personal loans. That’s for credit cards companies.

They don’t make auto loans. That’s for specialty finance companies.

What banks do instead of making home mortgages, personal loans, or auto loans, is they purchase pools of mortgages from Wall Street, pools of credit cards from Wall Street, and pools of auto loans from Wall Street, none of which help their local constituents or depositors.

I should point out there is one area in which almost all banks do make loans to local customers: Banks actually lend to local commercial and residential real estate developers. It’s the one area in which they have local knowledge and control, and feel they have an edge over Wall Street’s packaging of mortgage, credit card, and auto loan pools. So if your small business happens to be real-estate related, you should look to your bank for funding. Otherwise, trust me, don’t bother.

There is an interesting side note to the fact that most banks make local real estate development loans. In certain areas, this business has been an extraordinarily profitable and safe place for banks to lend money in the last decade or so. As anyone reading the real estate news can tell you (and that’s just about all of us), however, real estate development just hit a major rocky patch in many high-growth areas of the country.

Randolph and Mortimer Duke, my local bankers, may be soon trading places with the people they previously spurned. It’s not polite to say I told you so and enjoy others’ misfortune, but they might soon wish they had treated small business owners better.

I’d still like to hear from any BizBox reader who disagrees with me and who found a bank that actually works with them. I will be pleasantly surprised.