Why is Biz Lending Up For Everyone But Small Firms?

3 min read • Sep 21, 2011 • Dan Bischoff

This week the Federal Reserve had some good news about business lending: It’s up significantly since the start of the year.

Commercial and industrial loans have grown by $61 billion since the start of the year. That’s 6.2% higher than this time last year.

This uptick should be good news, right?

It is, unless perhaps you are a small firm. The bulk of these transactions were for midsized companies seeking equipment loans. Lending to small businesses in the U.S. declined last year by about 9% and hasn’t seen much improvement since.

Here might be a few reasons why loans are up for midsized businesses, but down for small businesses:

Small businesses aren’t looking for loans

The NFIB said that 93% of small business owners in August say their credit needs were either met or they weren’t interested in borrowing. The Wall Street Journal said most small business owners don’t expect to spend money on new equipment right now.

Strong loan demand from midsized businesses

Bankers say the strongest demand for loans is coming from midsized companies, as reported by the Wall Street Journal. That alone might be the reason there have been more loans issued to midsized companies.

Equipment is falling apart

Business owners “have come to a point where they have to spend money to replace infrastructure… that they have put off for the last two or three years,” said Michael Slocum, head of commercial banking at Capital One Financial Corp, to the Wall Street Journal.

To continue to operate, many businesses need money to replace machinery, make repairs and upgrade equipment.

Banks wary of small business

Carlos Evans, the head of Eastern Corporate Banking at Wells Fargo told the Wall Street Journal that Corporate America has never had more cash … debt levels are at all-time lows. It’s even better than it was three, four months ago.

“During the recession, businesses “cut costs, lowered break-even points, increased productivity dramatically,” he said. Now, “there’s a little bit more willingness to make capital investment, there’s certainly more willingness to make strategic investments.”

While there is more optimism among bankers about the economy and the growth in business lending, there may still be some hesitancy with small businesses. Over the last couple years, banks terms have tightened. However, they are starting to loosen, but banks are still a little bit wary of small businesses (especially startup loans) without established credit, and multiple years of positive revenue.

While this is true for many banks, there are also many other banks and credit unions that are focusing on small business lending; that are actively searching for credit-worthy small business owners. They just have a hard time finding them.

Small businesses don’t know how to find loans

Many small business owners don’t even try to get a loan in this environment. They don’t even think it’s an option because the perception is banks aren’t lending right now.

The truth is, banks want to lend. Banks are in a business and don’t make any money if they just sit on their funds. Credit-worthy small business owners just have to find the right fit.

Selfish, coy plug for Lendio

This is exactly what we are doing at Lendio: trying to help business owners find lenders that will loan them capital, and trying to help active lenders find qualified borrowers.

Many of the problems in this economy can be solved if small businesses can have access to funds to grow their business. Some of the business lending trends are promising, and we sincerely hope we can help those trends continue upward.

Your Turn

Now that you’ve seen the statistics, what do you think? Is it easier to get a business loan yet?

And, another coy plug: Find the right business loan
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Dan Bischoff