Lending To Small Business Increases But The Loans Are Smaller

July 16, 2013  |  

There is good news and bad news when it comes to the state of funding for small businesses. A new report finds that even though the U.S. is still in a recession, small business lending conditions have been slowly improving. However, the size of the loans is getting smaller.

According to a new annual report on bank lending to small businesses published by the Small Business Administration Office of Advocacy,  while the number of loans to businesses in general has been increasing since mid-2009, lending to small firms has been slower to bounce back and the average small business loan size has continued to decline, reports Yahoo!

“I can report that the overall picture looks better than it did a year ago. Although lending to small businesses was still down, the decline was less than in 2010 and 2011, an indication of progress,” wrote Winslow Sargent, SBA’s Chief Counsel for Advocacy, in the introduction to the 2012 research report. Sargent also predicted that year-by-year changes in small business lending will become more evident as the economy continues to get better.

The SBA Office of Advocacy examines the lending patterns of national and local depository lending institutions. It defines a small business loan by the size of the loan, not the size of the company receiving it. So, a small business loan is any commercial real estate or commercial & industrial loan under $1 million, with “macro business loans” falling between $100,000 and $1 million, and “micro business loans” being under $100,000.

And SBA data found that small business borrowers are “losing ground in competing for business loans.” This is despite low interest rates and a steady 3.25 prime rate since 2009. SBA economists point out with persistent economic uncertainty, lenders remain cautious about lending and small businesses hesitate to take on debt.

The SBA also found that:

• Total small business borrowing from depository lenders remained subdued, while large business borrowing actually increased. The value of small business loans outstanding decreased by 3.1 percent in 2012, compared with 7.0 percent in 2011, while large business loans in excess of $1 million went up by 12 percent in 2012, compared with 5.8 percent the previous year.

• In 2012, the value of micro business loans was $138.2 billion, compared with $139.5 billion a year earlier.

• Small business borrowers were less successful than large business borrowers in being awarded business loans in 2012.

According to SBA, non-depository lenders, such as credit unions and finance companies, have become increasingly important. It added that “although the banking industry has undergone major consolidation, the market for small business loans tends to be local in nature.”

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