Riggs National Bank, Washington's biggest financial institution, announced yesterday it will reverse the usual practice and give smaller businesses lower rates on loans.
In announcing the new small-business lending policy, Riggs stopped short of adopting the "two-tier" prime rate system that was started by some northeastern banks two weeks ago.
The two-tier system sets a lower prime rate for small businesses, which cannot afford to borrow at the current 11 1/2 percent prime rate. Most of the banks adopting two-tier rate systems pegged the small business rate about 1 1/4 to 1 1/2 points below the prime rate.
Traditionally banks offer their lowest rates to their biggest corporate customers and scale other business lending rates up from there.
Riggs Executive Vice President C. H. Whittum Jr. said the bank will reverse that procedure and scale small-business loan rates down from the prime starting next week.
"Each loan will be judged on its own merits, since there is no precise formula," a Riggs spokesman said.
Riggs officials said their small-business rates would be in the same range as those offered under most of the two-tier systems and would apply to the same business customers, but with "more flexibility" than two-tier rates.
The only Washington bank to adopt a two-tier prime for small businesses is McLachlen National Bank, which set up its plan last Friday.
American Security Bank, the second largest in the District of Columbia, is studying its small-business loan rates, but has made no decision to offer a lower rate, President Carleton Stewart said yesterday.
"Nothing at all has surfaced in our bank" to indicate the need for a two-tier system, Stewart said.
The latest major bank to adopt the plan was First National Bank of Cincinnati, which said it will offer loans to small businesses at 9 1/2 percent, two points below the prime.