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Small Business Lending Still Lagging

9/10/2014

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Across  the U.S., small-business lending has been behind most other types of business and consumer loans. According to the Federal Deposit Insurance Corp., at the end of the first quarter, banks had $585 billion in loans to small businesses on their books, up 1% from September 2013, but still 18% less than the height of $711 billion in 2008.  
 
The Wallstreet Journal Online reported that the number of loans for $1 million or  less held by banks is down about 14% 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.  In contrast, loans to businesses of all sizes totaled $2.48 trillion as of March 31, up 9% since 2008. 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.

What is the reason for the disparity between all business lending and small business lending?  Small business loans  have traditionally been made by small and locally owned and operated banks.  However, with the banking crisis of the  last recession, many smaller banks failed or were absorbed by larger banks.  After the bank failures and a drive by remaining banks to make underwriting standards more conservative, "relationship lending is gone," says Todd Anduze, director of the government-funded Small Business Development Center in Carrollton, GA, which advises small firms on financing and business planning. Local business owners used to be able to talk over their business plans with bank executives in social setting because they were all part of the same  community, but "now, if you don't fit into their box, you're not getting that loan."

The recovery for small business lending has taken a lot longer than most had  predicted.  Some business owners
have had to dig into their savings or retirement plans, turned to family and friends, or sought out alternative form of financing.  Many of these borrowers have good credit and at least 2 years of business history, but banks still don’t want to make them loans.  Luckily, the options available to these business owners are more plentiful than in years past, but many borrowers don’t know what their options are.

If you are a small business owner with questions about what your options are, please don’t hesitate reaching out to us here. We are in the business of providing solutions to your financing needs.


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