Dow Hits Milestone while Banks Jump Into Business Loans

3 min read • Feb 28, 2012 • Dan Bischoff

Cross your fingers. Things are looking good in the economy, and especially good for those seeking business financing.

The Dow did something it hasn’t since 2008, and lenders are poised to dish out more business loans.

The Dow

Today’s big news is that the Dow crossed 13,000 for the first time in nearly 4 years.

“People can see that the markets bounce back and are resilient over time,” Marc Scudillo, managing officer at EisnerAmper, a financial advice company in Bridgewater, N.J., told the Associated Press. “That’s a powerful message.”

The Dow went over the edge because of a report that consumer confidence jumped in February to its highest level in a year, and a much improved job market with unemployment rates dropping for 5 months in a row.

“Two months ago, we were talking about a double-dip recession. Now consumer confidence is growing,” Ryan Detrick, senior technical strategist for Schaffer’s Investment Research, told the Associated Press. “A major milestone like 13,000 wakes up a lot of investors who have missed a lot of this rally.”

Banks Poised to Boost Business Loans

The Dow story (somewhat) buried the news that the FDIC says banks are poised to help the economy.

The biggest reason?

Banks profits are up 23% in 2011. With bigger profits, banks are willing to lend more cash, including more small business loans. Rueters reported that he banking industry has recovered to the point that it can now boost the economic recovery by extending more loans.

“The industry is now in a much better position to support the economy through expanded lending,” said Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corp in the story by Reuters.

The FDIC said this is the third straight quarter bank loan balances have risen, and that the fourth quarter increase is the largest since 2007. Credit to businesses was up 4.9% at $62.8 billion.

“While much of that went to large and medium-sized businesses, the FDIC said that for the first time in the seven quarters that the figures have been tracked, lending to small businesses, defined as loans of $1 million or less, went up.” wrote Dave Clark in the Reuters story. “Such lending increased $2.8 billion, or 1 percent.”

Lenders across the country are so encouraged by signs of a recovering economy that they are planning to increase business loans in 2012.

Last week, Michelle Samaad of the Credit Union Times reported on a survey of 409 bankers. Some of those numbers were:

  • 77% of are likely to increase small business lending
  • 78% of those that don’t offer small business services, said they plan to actively pursue them
  • 78.3% say small business activity is their top area of focus
  • 66% say medium and large business will be their top focus this year

Not all is rosy

While the trend looks promising for the economy, and for those trying to secure capital, 57% of those banks surveyed said they don’t plan to make any changes to their credit standards for both commercial and consumer loans.

In the Reuters story, the increase in bank revenue was largely due to banks setting aside less money to guard against loan losses, and warns that the trend can’t continue.

“Future earnings will have to be based to a greater extent on increased lending, consistent with sound underwriting,” Gruenberg said.

Your Turn

What do you think? Are these trends real signs that the economy is improving and business lending will pick up? Or is this a fluke of the current recession?


Dan Bischoff