Government Report Shows Downward Trend in Small Business Lending

Despite recent monthly reports of small business lending showing an increase, an annual comparison tells a different story. According to a new government study comparing both large and small business loans in 2011 with the same 12 month period ending June 2010, smaller loans were down nearly 7% while lending to larger companies rose by nearly 6%.  The Small Business Administration attributes this to banks being afraid to lend to smaller businesses and fewer companies are applying for loans.  If small business has been struggling since 2008, why would fewer of them be seeking commercial financing? The author of the study claims that in this uncertain economy, small businesses are hesitant to acquire more debt. Business debt restructuring can reduce and renegotiate debt load thereby reducing the risk and increasing the effectiveness of new working capital.

Source: Catherine Clifford, July 26 2012, Entrepreneur for MSNBC.com

Small business loans contracted last year, while large businesses secured more dollars, according to the Small Business Administration Office of Advocacy.

Even as the economy showed signs of recovery in the wake of the Great Recession, small businesses lending contracted last year, while large businesses received more loan dollars, a new government study shows.

In the year ended June 2011, banks had $606.9 billion in outstanding loans to the nation’s small businesses, down 6.9 percent, compared with $652.2 billion for the same 12-month period ending in June 2010, according to the recent annual report on small business lending by the Small Business Administration Office of Advocacy.

Small business lending has been declining since June 2008, when banks had $711.5 billion in loans outstanding to small businesses. The report noted that this trend is in part because banks are afraid to lend to smaller businesses and fewer companies are applying for loans.

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“As economic uncertainty persists, capital markets serving small businesses remain cautious about providing more capital, while small businesses are hesitant to acquire more debt,” writes Victoria Williams, the author of the study and from the Office of Economic Research at the SBA Office of Advocacy.

Meanwhile, loan dollars for large businesses rose by 5.8 percent during the 12 months ending June 2011, compared with the previous year.

The report is based on data from banks’ Call Reports and from Community Reinvestment Act Reports. Loans made to businesses for less than $1 million are assumed to be going to small businesses.

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