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Bankers: Credit Tightens for Small Firms

Bankers: Credit Tightens for Small Firms

Even as consumer credit enjoys the prospect of a brighter future, according to a recent survey of bank risk managers, the outlook for business credit is not so rosy.  The general consensus of 272 bank risk managers indicates that the credit crunch for small business is going to get worse before it gets better.  An overall perception that the economy is slowing does not affect large organizations as much as it affects small business.  For them, a brighter future is still out of reach, along with bank credit.  Approval rates by large banks for small business loans continue to decline while demand continues to rise.  Alternative lenders can provide vital liquidity when the banks say no.

Source: The Wall Street by Angus Loten

As the recovery sputters, bankers are expecting the credit crunch for smaller firms to get worse before getting any better.

Among 272 risk managers surveyed at banks nationwide in the second quarter, 60% said they expected approval rates for small-business credit and loan applications to stay flat or decline in the months ahead, Minneapolis-based credit-risk firm FICO reported Tuesday.

Over the same period, 73.8% said demand for credit from small business would likely rise, while only 46% said credit extended to these firms would increase, the survey found. Another 28.1% expected delinquency rates by small-business borrowers to ease, compared to 36.2% in the first quarter, while 33% percent expected the rates to rise.

By contrast, the outlook for consumer credit was more positive, with credit-card delinquencies and charge-offs at pre-recession levels, according to Andrew Jennings, FICO’s chief analytics officer. “Although some consumers continue to struggle with debt, credit usage is under control at an aggregate level,” Jennings said in a statement.

Tighter credit for smaller firms is “most likely in response to a perceived slowing of the economy, which would likely affect small businesses more so than larger organizations,” the report said.

Citing data from more than 1,000 small-business loan applications, Biz2Credit Tuesday reported that approval ratings for small-business loans by large banks dropped to 8.9% in June from 9.4% in May. Loans at smaller banks fell to 42.5% from 44%, the New York-based lending broker reported.

The declines were blamed on weaker revenue and lower profits.