Encouraged by signs that the recovery may be gaining traction, some bankers said they are planning to increase their small business lending efforts this year.
According to a survey of 409 bankers conducted by loan and credit training firm Omega Performance, 77% of respondents said they were likely to increase their small business lending activity. For those banks that don’t offer small business products and services, 78% said they were planning to actively pursue offering them.
Bankers said small business activity (78.3%) is the top area that they plan to actively pursue this year, followed by medium and large business (66%), consumer (59%), individual housing (42%), credit cards (32.5%), auto loans (31.6%), multifamily housing (23.1%), construction (14.2%) and other activities (8.0%).
Seventy-nine percent of respondents said the economy will improve over the course of 2012. Still, 57.1% said they don’t plan to make any changes to their credit standards for both commercial and consumer loans this year despite the same percentage saying they expect to do more commercial lending.
It was just in November that Omega Performance President/CEO John Golden pointed out the circumstances that led to the financial crisis and how the banking industry has worked to avoid making the same mistakes.
“Because there is no useful credit risk transfer option for smaller loans, lending institutions know that they can’t trade out of a loan and instead must bear the entire risk,” Golden said at the time. Late last year, the firm found that while lending to large companies rose steadily across the globe, small- and medium-sized businesses struggled to obtain financing.
“The temptation is for banks to steer clear of multiple, harder-to-understand small and middle market loans in favor of fewer larger, but safer, credits,” Golden noted. “This bias toward large organizations might minimize the risks for financial institutions in the near term, but it limits growth in the long term.”
Omega’s most recent research shows that globally the expectation of doing more commercial lending this year is consistent in the U.S., Canada, the Asia Pacific, Europe, Africa and the Middle East. Of those areas looked at, banks in the U.S. and Canada said they expect to do considerably less commercial lending at 3.3%, slightly ahead of the Asia Pacific at 2.4%. Banks in Europe, Africa and the Middle East topped the list at 7.1% for the same expectation.
Meanwhile, in January, Biz2Credit, a New York firm that connects small businesses with lenders, said banks with assets between $10 billion and $50 billion are starting to come back in the market, albeit cautiously, as they monitor the European financial crisis and the U.S. debt debate.
Credit unions granted 57.6% of small business funding requests in January, which was up slightly from 57.4% in December, according to Biz2Credit. Loan approvals by small banks increased to 47.5% in January, up from 47.1% in December, to reach their highest rate in the past year, the firm said. Approvals by large banks rose to 11.7%, the highest percentage since February 2011, when 11.9% of small business loans were granted.
Community development financial institutions, accounts receivable financers, merchant cash advance, micro lenders and others approved 62.4% of the funding requests, up from 62.2% of funding requests in December, according to Biz2Credit’s small business lending index, which tracked 1,000 applications made through the firm.
Biz2Credit CEO Rohit Arora previously said optimism seems to be returning. His firm has seen a 35% increase in month-to-month volume of new loan applications.