Business Lending Shrinks In March

May 1, 2012 at 2:37 pm

The report is in that business lending by the biggest banks shrunk in the first quarter of this year. Fortune reports that lending by JP Morgan Chase, Wells Fargo, Bank of America, and Citigroup was down $24 billion, after an increase of $34 million in 2011. But while these large banks have receded from lending, bank lending overall has grown by $95 billion. As the article points out, “That’s an other sign that the nation’s biggest banks still haven’t fully healed from the financial crisis.”

The article also states that the decrease in lending could mean that “businesses and individuals don’t want to borrow because they are worried about the economy.” While that may be true in many cases, it’s interesting that the article did not point to the other well known reasons why banks have dropped in lending: tighter regulations, strict qualifying criteria, mergers and consolidations, etc. We know from our experience lending to small businesses that many entrepreneurs who could have qualified for loans at banks just a few years ago no longer can.  A survey by the American Sustainable Business Council, Small Business Majority, and the Main Street Alliance showed that 90 percent of small business owners saw the availability of capital as a major problem, and 61 percent of them said it is harder to get a loan now than it was four years ago.

In any case, the numbers corroborate a trend that has already been underway. As banks continue to pull back from business lending, other lenders will step in to take their place– credit unions, intermediaries, loan funds, CDFIs, etc. These lenders target and serve the very small businesses that cannot get loans from banks, but that drive economic development in their communities. In fact, employment grew by 2.6 percent in March among companies with under 50 employees, compared to growth of 0.2 percent among companies with 500 or more employees. What these data tell us is that we need a shift in policy to support lenders of all sizes and types– to support businesses of all sizes and types– in a changing environment, particularly as small firms continue to fuel job growth.

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Entry filed under: Economic Development, Small Business. Tags: , , .

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