Large Lenders Dominate the Small Business Market
There is more proof that lending to small businesses is starting to recover in some loan size categories even in the midst of a continued decline of activity by financial institutions.
The SBA’s Office of Advocacy’s latest edition of "Small Business Lending in the United States" tracked data over the 2009-2010 period. The study found that small business lending dropped by 6.2%, less than the 8.9% drop experienced in large firm lending over the period looked at. As the gross domestic product has turned upward, business lending may follow the pattern of other recessions, in which commercial and industrial lending grew only after recovery was well under way, the SBA said.
"Businesses and lenders continued to exercise caution in borrowing and lending through 2009-2010," said Winslow Sargeant, SBA chief counsel for advocacy. "As the economy improves, this study, through its state-by-state display of lender performance, can help both small business borrowers and lending institutions see where small firms are beginning to find the capital they need."
The study showed that lending in the smallest business loans under $100,000 began to stabilize in 2009-2010. The total was down by 1%, compared with a 5.5% drop in 2008-2009 with real estate loans accounted for the entire decline. The largest dollar volume decline was in loans of $250,000 to $1 million. Commercial real estate loans of this size were down by $17.9 billion, which represented more than 60% of the overall decline in CRE loans.
Commercial and industrial loans of $250,000 to $1 million dropped by $12.0 billion–nearly 90% of the total decline in C&I loans. The largest percentage decline was in CRE loans of $100,000 or less, down more than 16%. The decline was partially offset by an increase of 2% in C&I loans of $100,000 or less.
The study relies on two types of data based on reports made by depository institutions to their respective regulating agencies–Call Reports for June 2010 and Community Reinvestment Act reports for 2009. Analysis from both show that while performance measures of small business lending from depository institutions continued to trend downward in 2010, the share of loans held by the largest lenders remained fairly constant.
The Call Reports indicated that loans in the smallest size category, which is commercial and industrial loans under $100,000, began to stabilize. The largest lenders, defined as those with assets exceeding $10 billion, continued to dominate the small business loan market.
"The key to small business survival continues to be access to credit. The well-being and growth of small businesses depends on how depository lending institutions (commercial banks, savings banks, and savings and loan associations) are meeting the needs of small firms," the report said.
The SBA said knowing which lenders provide small business financing helps small firms save valuable time in shopping efficiently for credit. Such information also helps lending institutions learn about the demand for and supply of small business credit, about the competition in the markets they serve, and about new investment opportunities.