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
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