Small Business Lending Has Not Fully Recovered From Great Recession

Date: January 08, 2015

Volume Of Loans Of Less Than $1 Million Fell Sharply Between 2008 And 2012

While recent surveys have found small business
owners are optimistic about the economic outlook, new research from the Federal
Reserve Bank of Cleveland has found that small business lending has not
regained ground that was lost during the Great Recession. Report author Ann
Marie Wiersch noted that the volume of small loans of less than $1 million fell
markedly between 2008 and 2012 and has hardly recovered, saying, “Lending for
commercial and industrial under $1 million is down about 17 percent from the
peak of mid-2008. … That’s real significant. We’re nowhere near covering all
the ground we lost.” Over the past year, small commercial and industrial loans
rose 3.4 percent, which Wiersch described as a “modest” improvement, which is
concerning in light of the key role small businesses have played in economic
recoveries.

As small
businesses are still recovering, some banks have been reluctant to lend to them
because it’s not as profitable. Wiersch noted, “That hurts small businesses,”
as small businesses across the country “haven’t seen enough improvement in their
own situations to qualify for loans. They get discouraged, so they don’t
apply.”

That sentiment
appears to be reflected in a monthly survey by American Banker, which found
that fewer small businesses are applying for commercial loans. According to the
survey of US bank executives, the index for commercial loan activity declined
from 56.5 in October to 49.7 in November. At a conference in December, bank
executives attributed the problem to a slowdown in small-business loan
applications.

What This Means For Small Business:

While the economy as a whole may be showing signs of strength, the report is a
reminder that the lending environment for small business still hasn’t recovered
from the Great Recession.

Additional Reading:

The Wall
Street Journal
,
the Asheville
(NC) Citizen-Times
,
and PYMNTS all report on the trend in small
business lending.

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