Credit availability tightens, standards ease

Jessica SarterSmall Business Lending

The state of the small business sector has been very tricky to accurately assess, as some areas have experienced growth and others have not faired so well. Additionally, some reports have found certain negative statistics – especially pertaining to small business lending – and have asserted relatively fatalistic forecasts as a result, in many cases unnecessarily so.

For example, several reports released in the closing days of July asserted that small business lending dropped substantially in 2011, something that the authors of these reports viewed as signs of the worst.

However, other portions of these reports showed that instead of there being a big issue with the availability of funds, small business owners were being more responsible with finances. This was evidenced by some of the best credit improvements in decades experienced in the recent months, including the lowest rates of past due loan payments and delinquent accounts seen in years.

Two more recently released reports shed light on some aspects of last year’s lending trends, and how the sector has fared this year. First, the Small Business Administration Office of Advocacy came out with its Small Business Lending in the United States 2010-2011 report, which showed substantial decreases in several loan categories.

The biggest drop-off between 2010 and 2011 were loans of $50 billion or more, while those between $1 billion and $9 billion worked on a similar trend. Overall, small business loans of $1 million or less decreased by 6.9 percent last year – marking more than $45 billion less in distribution in 2011 than 2010.

According to the report, microloans used for commercial real estate experienced among the smallest decreases, though still a marked difference. The author of the report concluded that credit for small business owners was less attainable in 2011 than the year prior, though it believed other conditions, including those related to finances, yielded some economic growth.

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The Federal Reserve recently released its July 2012 Senior Loan Officer Survey on Bank Lending Practices. The Fed found that there was a substantial increase in demand for loans between April and July of this year, while domestic banks in the U.S. continued to ease lending standards to try and increase disbursement volumes.

Notably, the Fed found that this easing of policies mostly regarded commercial and industrial (C&I) loans for mid-sized and large businesses, while standards pertaining to small businesses were largely unchanged. This could have been because of the levels of demand from each group, as the former saw increased demand and the latter was steady from the previous period.

Still, other economic indicators have shown that startup and small businesses have seen success and expansion in recent months. This includes the most recent data from the U.S. Department of Labor Bureau of Labor Statistics, which showed nonfarm employment rose by 163,000 jobs last month. This was ahead of the monthly average of 151,000 seen through the first half of 2012.

Smaller firms, especially startups, continue to make up a large portion of new employment. The National Bureau of Economic Research recently found that the newest businesses accounted for 20 percent of the new hires made in recent months.