Index Shows Slight Increase in Large Bank Small Business Lending

January 3, 2013 at 11:28 am

The Thomson Reuters/PayNet Small Business Lending Index was released yesterday (January 2, 2013).  The report tracks the lending actions of more than 200 leading U.S. lenders, accounting for more than 17 million current and historic contracts.  The report showed that there was a slight increase (1%) in November over lending actions in October, and an overall 3% increase from 2012-2011.

This news is really a mixed result for the economy.  According to a white paper published on the Small Business Lending Index by Thomson Reuters and PayNet, the index is strongly correlated to short and long-term growth in the economy, and can be used to predict major changes in other leading economic indicators in the next quarter or two.  These results show sluggish growth, nowhere near the pre-recession levels.

However, remember that this information only shows a part of the market – the interests and records of loan originators from leading U.S. lenders to businesses that currently have borrowed less than $1 million from these mainstream lenders.  These figures do not track any origination handled by a smaller or community based lender.   As shown in The Support Center’s recent study on North Carolina’s lending market, Community lenders play an important role in providing lending to lower-income areas. With such a small increase, it would be interesting to see how this index correlates to lending patterns by smaller or community based lenders.

Additionally, other news reports on the report seem to be interpreting this material in an interesting fashion. Publications by CBS Money, Reuters, and others are reporting that the founder of PayNet takes this index to indicate that small businesses are making the choice not to seek additional funding, to grow, or hire additional employees.  However, the only data they collected is from the view-point of the lender, and this information does not include any indication of the number of small business loan applications or inquiries, or any input on the behalf of small business owners.  Other reports, such as the SBA Small Business Lending Report for 2010-2011,  are showing that it is the lenders which are withdrawing from this market and small business owners are still trying to hire and grow.  More work should be done to show how this conclusion was reached and whether the information provided by the lenders matches the reality for small business owners.


Entry filed under: Banking, Economy, Financial Reform, Jobs & Employment, Small Business.

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