Small Business Bank Lending Unlikely to Recover Soon


Entrepreneurs know how difficult getting a small business loan can be. With credit checks, tightened lending standards, and a financial sector that has not completely recovered from the recession, big banks have not made significant improvements in lending to small business owners.

Unfortunately for small business owners, it appears this trend isn’t going anywhere. According to a publication from the Federal Reserve Bank of Cleveland, getting credit and financing from big banks is still difficult for many small business owners. From 2007 to 2012, for example, more than 100,000 new business were founded in the United States. Despite the expansion, the number of loans distributed by traditional lending institutions decreased by 344,000 during the same period.

Contrasting views

In fourth quarter 2012, loans under $1 million for industrial and commercial purposes were just 78.4 percent of loan distribution rates from second quarter 2007. These working capital loans are a common financing option for small business owners to keep their shops open or to expand a company. The Federal Reserve Bank of Cleveland addressed the many contradictory reasons that groups cite as explanations for the decrease in lending.

According to the report, bankers deny that they are to blame for current loan rates. Instead, they say small business owners have not been applying for as many loans as in years past due to a decrease in demand for small business products. Bankers also say regulators have encouraged financial institutions to enforce stricter lending standards, making it more difficult for company owners to get loans.

Small business owners, on the other hand, report that the main reason for a lack of loans is the tightened restrictions imposed by big banks. Entrepreneurs said banks have increased collateral requirements and are simply not focused on giving loans out to small businesses. Entrepreneurs also say government regulations have decreased the likelihood of a merchant being given a loan.

Report analysis

Ann Marie Wiersch and Scott Shane, the authors of the report, acknowledged that it may be a variety of factors that have led to the current state of small business financing. The authors cited the fall in home prices, poorer small business credit ratings and stricter lending standards as the leading causes of the crisis.

“This confluence of events makes it unlikely that small business credit will spontaneously increase anytime in the near future,” the authors said.

If a small business owner is having trouble with financing, they can come to National Funding for assistance. National Funding offers many services and can help entrepreneurs get loans or a merchant cash advance for small business practices.