Jun 21, 2017

Bank Lending Drops as Small Business Borrowers Seek Political Clarity

Since the election, surveys across the board show small businesses growing increasingly optimistic about economic conditions. Business owners cite President Trump’s promise of tax cuts and health care reform for the boost in confidence, but the so-called Trump Bump is fading as business owners become impatient for policy change.

Small business owners have been borrowing less in recent months, and spending less on new equipment and structures, growth and hiring. The demand for bank loans has dropped significantly since last year. The number of business loans grew just 3.9 percent, making it the lowest-performing segment of loans with the slowest growth rate in almost six years. Total bank loans increased 4.6 percent since February 2016, the weakest showing since 2014.

Some experts say uncertainty over Trump’s ability to push his tax and health care reform agendas through Congress is holding back small business borrowers. Some blame the caution on Trump’s plans to reduce the number of non-immigrant visas, especially in the tech sector. Others say that borrowers have turned their attention from banks to online lenders that are subject to fewer regulatory constraints than banks.

“Businesses are just wanting clarity before putting these investments to work,” said Stephen Capiro, U.S. credit strategist for UBS.

Additionally, experts say that Federal Reserve interest rate hikes could be to blame, increasing the borrowing costs for some small firms. The number of businesses planning to make a capital expenditure in the months ahead is below pre-recession levels, according to the latest National Federation of Independent Business (NFIB) survey. Only 28 percent of the small business owner respondents said they had borrowed at least once every three months, the lowest reported number since October 2016.

“Typically, in a strong economy, we see a lot more spending on capital,” said NFIB Chief Economist Bill Dunkelberg. “We’re seeing increased hiring activity and some other positive signs, but the capital-outlays component is the missing ingredient for robust economic growth.”

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About the author

Melanie King
A storyteller since first grade, Melanie King has shaped a career around writing engaging narratives—though her illustrations haven’t improved much since age 6. As a reporter and editor, Melanie has written about everything from retail and tourism trends to economic development for regional newspapers, trade publications, and national magazines. As Lendio’s Director of Public Relations, she specializes in reporting fintech industry news and its impact on American small businesses. Melanie has a B.A. in Journalism from Brigham Young University. She is also a backpacker, runner, and mom of four.


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