Banks Increase Small Business Lending

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Two recent government surveys contain some positive news for business owners that need financing.  My informal discussions with local bankers confirm what the surveys say.  Coupled with other changes in SBA lending programs this could be a good time for some small businesses that need financing to go back to the banks.

The Federal Reserve July Senior Loan Officer Opinion Survey on Bank Lending Practices found that fewer banks are tightening standards for business loans than in previous surveys.  Standards remain more stringent than in the past, of course, and will continue that way for some time due to the uncertain economic outlook and a general reduced tolerance for risk.  However, the demand for loans from qualified borrowers continues to decline as well, particularly for small businesses.  The reasons cited are reluctance on the part of businesses to invest in facilities and inventory as well as reduced need to obtain working capital.  You can access the full report and all the underlying statistics at http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200908

Similar results can be found in the June Monthly Bank Lending Survey conducted by the Treasury Department of the top 22 recipients of TARP Capital Purchase Program (CPP) funds.  This survey provides detailed responses from each of the banks.  The survey found that outstanding loan balances fell 1% in June and new loan originations increased by 13%.  The banks in this survey also reported demand for business loans was low.  Small business lending showed growth in June.  Although the total outstanding balance of small business loans decreased slightly total small business loan originations increased by 26%. 

This report allows us to look at the specific responses of some of the large banks doing significant business in Northeast Ohio.  The report does not allow one to determine where the loans were made, only the dollar amounts of small business loan originations in June.

     Fifth Third: $352 million in originators, up 50% from May

     JP Morgan Chase: $956 million in originations, up 27%

     Key Bank: $40 million in originations, up 11%

     PNC (including National City): $389 million in originations, up 5%

     US Bank: $682 million in originations, up 36%

The full report is available at http://financialstability.gov/latest/tg_08172009.html.  It contains a lot of detail and commentary from these banks; interesting reading.

Why is this good news?  The supply of capital to support loans is improving but demand is down.  Banks need your business to remain profitable in an increasingly competitive landscape.  Bringing on qualified borrowers as clients is the first step to getting these companies to make use of other banking services - which is where the bank's real profitability lies.  The challenge is that credit standards remain tight.  However, if you have good personal credit and your company can show a solid track record of profitability and sufficient cash flow to cover the loan payments then many banks will want your business.