Small Biz Lending Is Down Sharply, At A Time When Other Kinds Of Loans Are Rising

With all of the attention paid to Fortune 500 companies, it’s sometimes easy to forget the huge economic impact of the health of the roughly 23 million small businesses in the U.S.. To the extent that loan traffic to those companies is a good economic sign, we are in trouble.

The Wall Street Journal pulled together a wide range of stats and the small business picture is disconcerting. “The number of loans for $1 million or less held by banks is down about 14 percent to 23.5 million since 2008. In nearly one-third of all U.S. counties, small-business lending remains below 2005 levels, estimates PayNet Inc., a Skokie, Ill., tracker of loans by banks, corporations and alternative lenders such as finance companies,” the Journal reported. “In contrast, loans to businesses of all sizes totaled $2.48 trillion as of March 31, up 9 percent since 2008. Federal Reserve data show that overall loans and leases grew in the second quarter at the highest quarterly rate since the end of the financial crisis, a sign of improvement in the economy. The latest official survey of senior loan officers showed that banks have loosened standards more quickly for medium and large companies than for small ones.”

The story focused on businesses in Georgia to illustrate the small business lending problems. The social interactions between local bankers and small business owners are becoming rare—and less effective, the story said.

“Relationship lending is gone,” Todd Anduze, director of the government-funded Small Business Development Center in Carrollton, told the Journal. “Now, if you don’t fit into their box, you’re not getting that loan.”

And the loss of a large number of small banks—which strongly tend to favor small businesses, as many are themselves small businesses—has been a major contributing factor. “The failure of so many small banks (in Georgia) has created a credit desert,” said Biz2Credit co-founder Rohit Arora.

Another sign are the viability of those loans and past-due stats are more than twice as bad for small business owners. “About 3.3 percent of small-business loans in Carroll and surrounding counties (in Georgia) are 31 to 180 days past due, based on dollars outstanding, PayNet estimates. The U.S. average is 1.5 percent.”


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