Lenders agree to increase small business lending, but progress is hard to track

September 7, 2012 at 9:30 am 1 comment

In September of 2011, 13 lenders agreed to increase their small business lending by $20 billion over three years. But, as the Huffington Post reports, almost one year later, the Small Business Administration (SBA) and the participating lenders have not come up with a uniform way of defining ‘small business loans.’ In addition, there were no specific goals outlined for each of the lender, so in the end there is no clear way to measure the lenders’ progress toward the $20 billion commitment.

When asked about the definition of ‘small business loan,’ the SBA stated that banks are allowed to go by their own standards– but most define it as a loan to a business with revenues under $20 million. This means that loans to some fairly large businesses could be counted toward the $20 billion goal. A more accurate benchmark would be business loans that are under $1 million, or better yet under $100,000.

We know that banks have been decreasing their small business lending. In a recent report, the SBA looked at loans under $100,000, $100,000 to $250,000, and $250,000 to $1 million (see a previous blog post about this report here). The SBA’s own analysis has shown that loans under $1 million decreased significantly, particularly among the largest banks. Given this acknowledgment that the problem lies in loans under $1 million, it would make sense to have any solutions aligned with this analysis.

If the banks can increase their lending to small businesses by the $20 billion goal, it may help to ease some of the barriers that small businesses are facing in accessing capital. However, this will only be true if they capital finds its way to true small businesses and is not used to inflate banks’ reporting on small business lending.

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Entry filed under: Banks, Small Business. Tags: , , , .

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