Small-Business Lending Roundup

February 15, 2011

Small-business lending in the U.S. continues to be stymied, however modest gains do appear to be occurring. The U.S. Federal Reserve Bank Survey of Senior Loan Officers shows a slight easing for small-business loans while a report from the U.S. Small Business Administration’s Office of Advocacy shows slightly lower decreases in lending to small businesses between 2009 and 2010. Finally, recent lending data from the nation’s largest banks shows increases in small-business lending.

Federal Reserve Survey

The U.S Federal Reserve recently released its latest quarterly survey of senior bank loan officers. The survey found that only 5.3 percent of banks eased credit conditions “somewhat” for smaller firms, while 3.7 percent tightened conditions. The Fed defines a small company as one with annual sales of $50 million or less.

Larger firms fared better, with 12.3 percent of the 57 U.S. lenders surveyed reporting that they eased credit “somewhat” and only 1.8 percent reporting that they tightened it.

While 30 percent of the banks reported greater demand from large and mid-size firms, only 5 percent reported increased demand from small firms.

According to the Fed: “Of banks that reported having eased standards or terms on commercial and industrial loans, large majorities pointed to increased competition from other banks and nonbank lenders, as well as to a more favorable or less uncertain economic outlook, as reasons for the changes.”

Office of Advocacy Study

The Office of Advocacy recently released a new study on small-business lending. The study, Small Business Lending in the United States, 2009-2010, found that small-business lending dropped by 6.2 percent during the period. This translates into a drop of $43 billion. Compared to June 2008, the total value of outstanding loans to small firms plunged by 8.3 percent—or $59 billion.

According to the report, business loans under $100,000 declined by one percent in 2009-2010. This is an improvement from the previous year, when these loans decreased by 5.5 percent. The report attributed the entire decline to a drop in real-estate lending, contending that commercial and industrial loans had increased.

The report also found that, “The largest lenders—those with assets exceeding $10 billion—continue to dominate the small business loan market.”

Small Business Lending in the United States, 2009-2010 was compiled from data reported—through Consolidated Reports of Condition and Income and Community Reinvestment Act reports—by financial institutions to the Federal Deposit Insurance Corporation.

Click here to view the full report.

Big Bank Small-Business Lending

Having publicly pledged last year to increase their small-business lending, two of the country’s largest banks made good on their promises and a third still significantly expanded its small-business lending.

In total, Bank of America, JPMorgan Chase, and Wells Fargo increased their small-business lending by 16 percent, or $16.5 billion. In total, they originated $117 billion in small-business loans. Citigroup, the country’s third-largest bank, did not publicly announce any small-business lending targets.

Last year, JPMorgan Chase pledged to increase its small-business lending to $10 billion in FY 2010, which it managed to do. This is a two-thirds increase from the $6 billion it lent in FY 2009.

Bank of America, which pledged to increase its lending to small- and mid-sized companies by $5 billion, achieved a more than $11 billion increase, including loan renewals—although the bulk of this expansion went to midsize companies with $20 million to $50 million in revenue. Firms with less than $20 million in revenue received about $18 billion in loans from Bank of America in FY 2010, an increase of about nine percent from the previous year.

Although Wells Fargo pledged to expand its small-business lending by $16 billion in FY 2010, it fell more than $1 billion short of its goal. A spokesperson for the bank attributed this to a lack of “loan demand from solid businesses last year.” Wells Fargo did still increase its small-business lending by 15 percent, however—up to $14.9 billion.

It must be noted, however, that it is not clear what percentage of these increases were achieved through an expansion of the small-business credit-card market. Bank of America, for instance, recently announced that it had introduced a new software program aimed at making it easier for bankers to offer credit card and other products to small-business owners who walk into its branches.