NEEDHAM, Mass. — With consumer lending, residential mortgages, and commercial real estate volumes declining, U.S. banks are quickly shifting their lending focus to small businesses, a segment that has been growing steadily for the past five years, a new study revealed.

TowerGroup found that U.S. small business loan balances increased at a compound annual growth rate of nearly 7% between 2001 and 2005. In addition, small business loan volume grew at a rate of 14.3% from 2001 to 2005, with most of the growth occurring with loans under $100,000.

According to the study, Small Business Loan Origination: Spanning the Continuum, authored by Patricia Hines, TowerGroup senior analyst of wholesale banking, most banks use annual revenue size of the business as a determinant for small business loans, with $5 to $10 million as the maximum. Outstanding balances for loans under $100,000, targeted primarily to sole proprietors, have been trending downward and by 2005 averaged $7,300 per loan.

Several factors have had a significant influence on small business lending at banks including the decline of net interest margins, manual intervention to gather data from core systems, the growing use of Small Business Administration loans, growth of business credit cards, emphasis on product cross-selling, the spread of credit scoring and meeting the varied behavior of small business owners–some prefer personal interaction with banks while others opt for remote access, the study found. –[email protected]