Is Business Lending Back or Stagnant? Conflicting Signals From the Media

5 min read • Apr 26, 2012 • Dan Bischoff

Apparently, business lending is down. And, apparently, business lending is up.

It just depends who you talk to these days.

In April, Forbes, said biz lending is back while Fox Business said it’s unchanged, and Wall Street Journal said many are skeptical the lending environment would be improved this year. Below is a list of some of the media lately talking about the state of business lending:

Business Lending is on a Comeback

“Large banks are taking on small-business lending again” — The Street

” … recent research by Sageworks, a financial information company, shows that businesses’ borrowing-related financial ratios have improved, making access to credit more likely …” — Forbes

“Based on Federal Reserve data, commercial and industrial (C&I) lending by U.S. commercial banks has increased each month for the last 14, after declining for 23 of the preceding 24 months. Banks’ renewed emphasis on business banking is evident in their lending and their hiring. Bank of America Corp. (NYSE:BAC), for example, has said it will hire 1,000 small-business bankers around the country by mid-2012.” — Forbes

“It is evident that lending is getting back to pre-recessionary levels as private companies continue to improve,” said Sageworks CEO Brian Hamilton. “When banks lend more money and businesses are doing better and start borrowing more, this trend tends to sustain economic recovery.”

“The continued strengthening in financing volume and trend toward healthier portfolios provide clear evidence that the equipment finance marketplace is in the midst of regaining some of the momentum lost during the Great Recession,” ELFA President and CEO William G. Sutton said in a press release last month.

“New lending to franchises will total $9.5 billion this year, according to new data released by the International Franchise Association. While that’s up slightly from 2011, it falls well short of the $11.72 billion those franchise owners will seek in loans over the course of 2012.” — Washington Post

“The U.S. Treasury Department reports that small-business lending in North Carolina has increased by $124.4 million since the Small Business Lending Fund was established in 2010. In South Carolina, lending has increased by $50.5 million.” — Charlotte Business Journal

“Small business lending has hit its highest level in four years, up by 18% … We are entering a new phase of the business cycle,” Phelan told Reuters. “Businesses are betting on the future with increased investment spending.” He added that the surge in borrowing “tells us there will be growth for at least the next quarter. There is underlying strength in the economy that is not being reported elsewhere.” — American Express Open Forum

“Chase says small business lending up %30 in Illinois” — Chicago Tribune

“Companies signed up for $6.8 billion in loans, leases and lines of credit in March, 10 percent more than $6.2 billion a year earlier, and 36 percent more than February’s $5.0 billion, ELFA said.” — Reuters

Biz Lending is Stagnant

“Small business lending is ticking up a bit this year compared to 2008, when credit markets froze, but obtaining bank loans remains much too difficult, according to business owners and bankers speaking at a small business lending summit in Washington.” — The Wall Street Journal

“Small businesses hoping to secure a loan found little success in March, with small-business lending at a standstill.” — Fox

“According to a recent study by PayNet, a financial research firm, lending to small businesses was unchanged for the second straight month. The Thompson Reuters/PayNet Small Business Lending Index came in at 98.2 in March, down 0.1 percentage point from 98.3 in February. Lending is currently at the same level it was in summer 2011.”

“PayNet said that these findings mean small business growth is slowing, and this trend may spread to the overall economy.” — Fox

“Paul Merski, chief economist for Independent Community Bankers of America, called (Congressional gridlock) the snowflake effect. Regulations keep piling up on the roof, and ‘the roof is going to finally collapse,'” — The Wall Street Journal

“During a time when the economic recovery is still struggling to gather momentum, that 18.6 percent gap in loan demand and loan supply will rob the economy of an estimated 94,000 new jobs and $12.9 billion in gross domestic output in 2012, experts said. Contributing to the shortfall are factors like tighter credit standards, heightened regulatory scrutiny and uncertainty surrounding the tax code, according to the report, which was conducted by the the IFA in partnership with FRANdata.” — Washington Post

What Lendio Sees

In the last year, business loans have been in high demand. We’ve had more than $7 billion requested in 12 months. And with each month we’re seeing better approval rates and success rates from people using us to get a business loan.

That’s not necessarily to be self promotional, but to show a point. Using Lendio, or one of our competitors that are matching lenders with business borrowers, is a more efficient way of getting capital. What worked in 2005, won’t work anymore. People could get much more capital if they knew how to find it — which is often from some other place than the community bank down the street.

Getting a small business loan today is harder than it was pre-recession. There’s no question about that. There are more strict terms, restrictions, and less businesses that qualify for those terms. However, the problem might be that business owners are still approaching getting financing the way they did in 2005.

Business lending in 2012 is a very different world than 2005.

But banks are still lending. They just each have specific qualifications. And it’s much harder for a business owner to search and find the right lender that will fit their own specific business. In the same vein, it’s much harder for banks to find the qualified borrower. A case in point is Jake Fackrell, who found a business loan he didn’t even know existed until he came to us.

This problem — of banks and borrowers failing to find each other — is hurting the economy. In fact, it’s robbing the nation of jobs.

The reason business lending seems to be stagnant and improving at the same time might be partly because those surveyed at any given time include a mixture of business owners that have found the right lender, and there are those who still operate like its 2005. I’m guessing the majority of those looking for business financing are in the later category.

It does make you wonder, what would be the different lending rates had every business used Lendio or one of our competitors to get matched to the right loan?

Your Turn

So what side are you on? Is business lending coming back or still stagnant?


Dan Bischoff