Small business lending freeze spread evenly across all bank sizes, loan sizes

Small business lending has yet to recover in the years following the recession, leaving business groups and economists searching for a culprit and a remedy.

Many have pointed fingers at large banks, which adopted far stricter lending standards after the financial collapse, shutting out many small employers. Others have noted that credit unions and small banks have stopped picking up the slack.

So far, though, according to the data, the decline has been steady and evenly spread.

Using FDIC data, American Banker earlier this month put together the chart below, which shows outstanding small business loan volume broken down by both bank size (the three colors) and loan size (the three sections on the y-axis).


(FDIC Data / Compiled by American Banker)

Check out the trends from 2009 to 2012 (right of the bold black line). Notice a pattern?

Small, mid-sized and large banks have each reported a steady decline in small business lending since the recession, and each has followed a downward trajectory in all three loan-size categories.

“Obviously, it dipped for everybody,” said Jim Seitz, a spokesman for the small business banking unit at Wells Fargo, one of the largest lenders to small firms in the country.

The lone exception has been loans of under $100,000 by large banks, which remain above the levels reported a decade ago and have shown some intermittent upticks in recent years. Still, even those remain below from their peak just before the recession.

“Nobody has been immune,” Rohit Arora, chief executive of Biz2Credit, a small business credit marketplace, said in an interview. “It’s starting to get better, but there is still a lot of pain out there.”

Many have suggested that small-dollar loans were among the hardest hit following the collapse. But if anything, the data suggests loans under $100,000 have held up the best, as their decline (in total dolar amount) over the past few years has been far less steep than those between $100,000 and $250,000 and those between $250,000 and and $1 million.

One reason the decline in small-dollar lending has captured more attention, Arora said, is that a dip in the small-loan category tends to affect a larger number of borrowers (and thus, a larger number of businesses) than the exact same size dip in the large-loan category.

A $1 million dip in small loans could mean, for instance, that 100 business owners were turned away for $10,000 loans, while the same dip in the large-loan category could affect just that one business owner who applied for a $1 million loan. The decline in larger loans, therefore, “makes a lot less noise,” Arora said.

So, if policymakers are interested in fostering a more frothy lending environment for small businesses, as many of them say they are, it appears there isn’t just one or two gaps that need closing. It’s going to take a comprehensive approach, targeting all loans sizes and all banks.

Follow On Small Business and J.D. Harrison .

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he manages the Post's On Small Business blog.
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