12/29/17

4 Things We Learned About Small Business Lending in 2017

From uncertainty over tax reform and government regulations to a rise in small business optimism, 2017 has been a year filled with highs and lows in the world of small business ownership. But when it comes to financing, business owners were bullish and ready to grow this year. Here’s a look back at some of the news, statistics, and highlights in 2017:

  1. The Top 10 States for Small Business Lending

Small business plays a big role in the U.S. economy—more than half of Americans either own a small business, or work for one, and they create nearly two out of every three new jobs in the U.S. each year.—and small business lending is crucial to continued growth. In May, Lendio announced its second annual list of the top 10 states for small business lending. Based on lending data from the Lendio platform, which matches businesses with more than 75 lenders, Utah took the top spot followed by Washington, California, Virginia, and Texas.

“There are more than 28 million small businesses serving as the engine of our economy,” said Brock Blake, CEO and founder of Lendio. “This list showcases entrepreneurs and what they do best—grow their businesses, create jobs, and ensure that their communities remain as vibrant tomorrow as they are today.”

  1. Discrimination in Accessing Affordable Credit

A September 2017 survey, conducted by The California Reinvestment Coalition, showed that more than half of respondents believe that small business owners still face discrimination based on race, sex, age, national origin, marital status, or for receiving public assistance.  

“These findings highlight the importance of the CFPB’s 1071 rule to identify and address discrimination in the small business lending marketplace,” said Kevin Stein, deputy director of the California Reinvestment Coalition.

The Consumer Financial Protection Bureau’s 1071 rule would allow the agency to collect information about small business borrowers. The CFPB, a government watchdog created to make and enforce laws about consumer finance, wants to increase its efforts to collect data from small business borrowers in hopes of revealing the existing gaps in accessing credit for women and minority-owned businesses. Submitting information would be voluntary, and many economists agree that collecting this data could help identify possible discrimination, especially in regard to ethnicity and gender, as well as increase transparency to improve access to loans for all business owners.

  1. Rise in Small Business Borrowing

Borrowing by small U.S. firms hit its highest level in nearly a year. The Thomson Reuters/PayNet Small Business Lending Index for May of 2017 rose to 137, its highest level since June of the previous year. The increase was driven by an 11 percent year-on-year rise in borrowing by businesses in arts and entertainment. Transportation and healthcare companies slashed borrowing by 13 percent and 14 percent respectively.

The rise in borrowing corresponds with the Fed’s second-quarter U.S. economic growth projections, showing that small enterprises are investing in their businesses to keep up with demand. Small business borrowing is a key barometer of economic growth and job gains, and movement in the index is typically tied to changes in gross domestic product growth a quarter or two ahead of the report.

  1. Online Marketplaces and Banks Joining Forces

The emerging technologies of lending marketplaces have simplified the loan application and approval process for small business owners seeking capital, and banks are taking notice.

To make partnerships more favorable and beneficial, small business borrowers, online lenders and incumbent banks alike have called for regulatory reform. The Consumer Financial Protection Bureau (CFPB) announced an inquiry into the small business finance market, aimed at identifying the financing needs of small businesses. Groups chimed in with mixed responses, advising the bureau to proceed with caution as well as calling for exemption to any further rulemaking that could increase regulatory burdens on the small business lending sector.

While the business lending sector experienced notable successes in 2017, it remains to be seen how much ever-changing tax policies, government regulations, and potential changes to health care coverage and beyond will impact small business sentiment and borrowing in 2018.

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About the author

Elizabeth B. Jensen
Elizabeth Jensen has written for a variety of small businesses and travel organizations, including Visit Salt Lake and Ski Salt Lake. She has a B.A. in Public Relations.

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