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You and Your Money

SMALL BUSINESS FINANCE: Signs of Impending Growth in Small Business Lending

SMALL BUSINESS FINANCE: Signs of Impending Growth in Small Business Lending

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Lending to small firms by U.S. financial institutions continued to decline over the 2009–2010 period, but some loan size categories began to stabilize, according to the Office of Advocacy’s latest edition of Small Business Lending in the United States. The authors note that GDP has already turned upward, and that business lending may follow the pattern of other recessions, in which commercial and industrial lending grew only after recovery was well under way.

The term “small business lending” here refers to business lending in amounts under $1 million. Total small business lending by these reporting institutions dropped by 6.2 percent, less than the 8.9 per- cent drop in lending to large businesses (loan amounts over $1 million) over the 2009-2010 period.

The smallest or “micro” business lending is lending in amounts under $100,000. Micro lending began to stabilize in 2009-2010—the total was down by 1 percent, compared with a 5.5 percent drop in 2008- 2009. Real estate loans accounted for the entire decline.

“Businesses and lenders continued to exercise caution in borrowing and lending through 2009-2010,” said Chief Counsel for Advocacy Winslow Sargeant. “As the economy improves, this study, through its state-by-state display of lender performance, can help both small business borrowers and lending institutions see where small firms are beginning to find the capital they need.”

The study was written by George Haynes and Victoria Williams of the Office of Advocacy. It relies on data reported by financial institutions to their regulatory agencies and compiles state-by-state rankings of these institutions with respect to their small business lending. Two types of reports are used: Consolidated Reports of Condition and Income (Call Reports) and Community Reinvestment Act (CRA) reports.

Because of data limitations, the study looks only at the supply side of the lending equation, but some small business credit demand indicators have recently begun to register increases. It’s important to note that the rankings are unrelated to banks’ status with respect to Small Business Administration lending programs.
Small Business Lending in the United States, 2009-2010 may be found on the Advocacy website at www.sba.gov/advocacy/852.