Still considered a sweet spot for credit unions, microlending isquickly gaining interest among larger, billion-dollar banks amidthe widespread credit access rut.
In 2008, microbusiness loans totaled $170.5 billion, which was a$10.8 billion increase over loans funded in 2007, according to theSBA's new “Small Business and Micro Business Lending in the UnitedStates.” The study looked at lending activity at commercial banks,savings banks and savings and loans, but did not include creditunions.
Loans under $100,000 accounted for 69.2% of the number of loansmade by the largest lenders, defined as those with $10 billion to$50 billion in assets, by the end of June 2008. Their share of thevalue of these loans increased from 52.7% in 2006 to 60.9% in2008.
While there is renewed interest in approving microloans by bigbanks, credit unions may have an edge if they offer a package ofservices that includes merchant offerings.
“Increases in both the dollar amount and volume may be attributedto continued efforts to promote small business credit cards bycredit card issuers,” said Chad Moutray, chief economist anddirector of economic research at the SBA's office ofadvocacy.
Credit unions may see an advantage in increased bankconsolidations, according to the report. The number of lenders withassets under $500 million was down by 150 in 2008. The total numberof lending institutions as of June 2008 was 7,380. Even though thenumber of multi-billion-dollar institutions with assets over $10billion declined from 106 to 100 as a result of continued mergerand acquisition activity, they still accounted for 66% of the totalbusiness loans and 76.5% of total assets in 2008.
“In the current financial climate, it's especially critical forsmall firms to know which banks and financial institutions havebeen the most likely to make small and microbusiness loans,” saidSBA Advocacy Economist Victoria Williams, who co-authored the studywith Senior Economist Charles Ou.
Indeed, larger corporations may set the pace for how businesslending shakes out over the next few years. As the economy attemptsto recover, bigger businesses may continue to increase their use ofexternal funds and contribute the most to total business borrowingas a result of merger and acquisition activity between 2007 and2008. The SBA found that borrowing by large corporations in loansizes over $1 million increased to 12.2% in 2008 compared with11.7% in 2007.
Up a bracket to the $100,000 to $1 million loan range, large bankseither stalled or were not as aggressive in approving theseamounts, according the SBA report. The share of the dollar amountoutstanding in this category increased slightly, from 42.3% in June2006 to just 43.9% in 2008. The share of the number of loans madein this category increased from 37.8% to 42%. Williams and Ou saidas bank mergers continue, “It will be important to continuemonitoring this development.”
Meanwhile, credit unions and other financial institutions with lessthan $10 billion in assets remain vital contributors to the lendingmarket even as banks maintain dominance, providing loans, capitalleases, credit lines to 60.3% of all small businessborrowers.
“One vital ingredient essential to small business survival isaccess to credit. The health and growth of small businesses iscritical and depends on knowing how lending institutions aremeeting small firm credit needs and which lenders are investing insmall businesses,” the report noted.
Being armed with this information not only helps small businessessave valuable time in shopping for credit, but it also giveslending institutions, such as credit unions, information about thedemand for and supply of small business credit. It also helps themlearn about the competition they face in the markets theyparticipate in, according to the authors of the SBA's report.
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