16 June 2019

Small-Business Lending Recovery Lags

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Across the U.S., small-business lending has been stuck in a slow, grinding recovery behind most other types of business and consumer loans. At the end of the first quarter, banks held $585 billion in loans to small businesses, up 1% from last September but still 18% less than the peak of $711 billion in 2008, according to the Federal Deposit Insurance Corp.

The number of loans for $1 million or less held by banks is down about 14% to 23.5 million since 2008. In nearly one-third of all U.S. counties, small-business lending remains below 2005 levels. In contrast, loans to businesses of all sizes totaled $2.48 trillion as of March 31, up 9% since 2008. Federal Reserve data show that overall loans and leases grew in the second quarter at the highest quarterly rate since the end of the financial crisis, a sign of improvement in the economy. The latest official survey of senior loan officers showed that banks have loosened standards more quickly for medium and large companies than for small ones.

Some analysts are encouraged by recent signs of a lending uptick by small banks, which often focus on small businesses. In July, the total amount of commercial and industrial loans held by small U.S. banks rose 11% from a year earlier, according to Moody's Analytics. July was the fourth straight month with a double-digit percentage increase.

For decades, local business owners chewed over business plans with bank executives at ballgames and local restaurants, building relationships that help win loan approvals.

A study of lending cutbacks during the financial crisis concluded that employment and business formation were depressed in counties with more exposure to banks that cut their small-business lending, according to University of Chicago economist Michael Greenstone, a co-author of the study. Bank failures hurt local economic activity for years, according to a study by Federal Reserve Bank of New York economist Adam Ashcraft, who examined the impact of some bank closings during the savings-and-loan crisis.

Some business owners have dug into their savings or retirement plans, turned to family and friends for funding or sought out costlier forms of financing. Biz2Credit Inc. says nearly three-quarters of Georgia business owners who approach the online small-business lending marketplace wind up getting loans from high-cost, short-term lenders. That is the highest percentage of any U.S. state.

Some entrepreneurs are reluctant to take on debt even though their business is strong. They still feel rattled by the recession, unsure about the economic recovery's strength and chastened by the trouble other small-business owners have keeping up with loan payments. About 3.3% of small-business loans in Carroll and surrounding counties are 31 to 180 days past due, based on dollars outstanding, PayNet estimates. The U.S. average is 1.5%.

Click here to access the full article on The Wall Street Journal.

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