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Small-Business Lending Remains Tight, But Bright Spots Exist

Small-Business Lending Remains Tight, But Bright Spots Exist
Image credit: The Silver Pen

Small-business lending continued to inch downward in the second quarter of 2012, but there are some indications that the longstanding credit crunch could be easing.

The dollar value of small business loans outstanding (loans under $1 million) totaled $587.8 billion in the second quarter, a drop of 0.4 percent from $590.2 billion in the first quarter, according to the Second Quarter Lending Bulletin released Friday by the U.S. Small Business Administration Office of Advocacy.

"We're still stuck in a little bit of a downward rut," says Joe Johnson, chief economist in the SBA's Office of Advocacy. However the recent SBA report highlights some bright spots with respect to small business lending. While loans are still hard to come by, conditions haven't necessarily gotten worse and in some cases have actually improved.

Total small commercial real estate loans declined at one of the slowest rates since the start of the downturn, while small business commercial and industrial lending remained steady during the first half of 2012. Micro-lending (loans under $100,000) seems to have steadied for the third consecutive quarter. Meanwhile, data from the Federal Reserve shows that demand for loans was unchanged. What's more, standards on loans to small firms remained about the same for the fourth consecutive quarter.

Related: Credit Crunch Easing for Small Businesses

Some lenders increased their loans to small businesses, namely those with $500 million to $999.9 million and $1 billion to $9.9 billion in assets. On the flip side, large banks with $50 billion or more of assets decreased their small business lending after remaining relatively flat with only negligible increases for the past few quarters.

Since 2008, the value of loans outstanding has been steadily declining quarter to quarter, according to the SBA whose reports are based on Call Report data from the Federal Deposit Insurance Corporation. The rate of decline has tapered off, but the growth in new loans continues to be a sticking point.

Despite some economic improvement, there is still perceived risk with respect to lending to small businesses. The value of new loans being made can't keep pace with the value of loans being paid off, hence the continuing drop in loans outstanding.

A few consecutive quarters of an increase in loans outstanding would be a clear sign that there's a turnaround in small business lending, Johnson says. "We're still not at a place where we're seeing significant growth in lending to small businesses."

Related: Finally, Access to Capital Improving for Small Businesses

Cheryl Winokur Munk is a freelance writer and editor in West Orange, NJ. She is a former reporter for Dow Jones Newswires and American Banker where she covered the financial services industry. She earned a B.S. in journalism from Boston University.

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