Lenders Stingy with Small Business Loans
Before the floor fell out beneath the banking industry last September, the lending industry was already seeing a decrease in small business loans, according to the U.S. Small Business Administration Office of Advocacy. Their annual study, entitled the Small Business and Micro Business Lending, which was released last month, found that the number of small business loans (loans of $100,000 to $1 million) decreased from 2.9 million to 2.2 million, a 23 percent drop, between January 2007 and June 2008. For loans under $100,000, the number of loans increase by 16 percent.
Although a rise may appear to be positive, Charles Ou, a senior economist for the Office of Advocacy, says that the decrease in the larger loans could be related to commercial mortgage lenders and the business developers reducing their commitments to business owners. "When the economy slows down and uncertainty increases, both the lenders and the borrowers will hold back," says Ou. While the larger loans dropped off last year, banks continued to issue new credit cards to new small businesses, offering an explanation for the rise in microloans.
Ou expects that the period following June 2008, however, will also show a decline in microloans because bankers began recalling credit cards this past year. "Banks are currently not renewing small business credit cards and not actively promoting cards as they did last year," explains Ou.
The dollar value of the small business loans also increased to 12.2 percent in June 2008, up from 11.7 the previous year.
"We know now that small businesses are not borrowing as much, they may be holding back the borrowing because they don't see the prospect of expanding," Ou says. He also doesn't discount the fact that the lenders are making it far more difficult for small business to acquire loans. "Lenders have become more picky, they continued to tighten, and small business should expect that credit will not be as easy as before 2007," adds Ou.
The Office of Advocacy based their findings on the data from the June 2008 Federal Reserve Board call reports as well as the Community Reinvestment Act reports from 2007.
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