Small Businesses Show Recent Signs of Recovery

There is good news for small business owners and entrepreneurs considering a new venture — lenders are steadily increasing their volume of small business loans.

In May, the overall number of loans to small companies grew 12 percent, the largest month-to-month increase in three years.

The Thomson Reuters/PayNet Small Business Lending Index, which calculates the overall volume of financing to small American companies, increased to 108.4, a substantial increase from the previous 96.6 reported in April.
Since the economic downturn in 2008, small businesses have struggled to finance their endeavors and establish lines of credit as lenders were often hesitant to commit.

Reports currently indicate, however, a significant increase in lending as both large and small banks commit to the growth of small businesses.

Banks Lending, Credit Unions Want to Lend More

Several big banks have recently made a strong effort to support the small business arena. For example, both Chase and Citi banks reported larger small business loan volume over the past year.

Chase stated its amount of loans extended to small businesses was up 52 percent from 2010, with $17 billion in loans in 2011. Last year, they reported that more than 400,000 new loans and lines of credit were established to small businesses.

Citi said it increased its loans more than 30 percent from the previous year and committed $7.9 billion to small companies last year. In September 2011, Citi pledged to lend $24 billion to small businesses over the span of three years.

Small bank lending is also on the rise. It increased to 47.5 percent in June, two points higher from the previous month and five points higher year over year.

Financial experts are especially optimistic about the marked increase in lending as the first four months of 2012 originally showed a substantial decrease overall in small business loans.

In June, several credit unions reported they had reached their yearly spending limits, which is 12.5 percent of their total assets. Sen. Mark Udall (D-Colo.) introduced the Credit Union Small Business Jobs Bill to raise the credit union lending cap to 27.5 percent.

According to Biz2Credit Small Business Lending Index, which analyzes 1,000 applications month to month, big-bank approvals increased half a percentage point in June to 11.1 percent. In June 2011, the approval rate was a mere 8.9 percent.

Fewer Businesses Behind on Loan Payments

Other PayNet data revealed that fewer businesses are behind on their existing loan payments, another positive sign for the economy as it may continue to strengthen the ability for businesses to borrow in the future and grow.

Delinquent small business loans have decreased – another positive indicator for the future. Data indicated that business owners behind in payments by 30 days or more lessened to 1.18 percent in July from 1.28 percent in April.

This is a significant change from May 2009 when the percentage of businesses behind on payments reached 4.41 percent.

Those accounts considered delinquent at 90 days or more overdue, dropped from 0.34 percent to 0.29 percent within the same time frame. Small business loans in default and deemed unlikely to be repaid went from 0.44 percent to 0.40 percent.

Borrowing is also up 18 percent from May 2011, which suggests small business owners are requesting and securing the financing they need to grow their businesses or hire more workers. Analysts are hopeful the change is a sign of strong economic growth.

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at bfay@debt.org.

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    Sources:

    1. Harrison, J.D. Small Business Lending Recovers, Delinquencies Drop to Record Low (2012). Retrieved from:
    2. http://ado.alabama.gov/content/media/press/BN.aspx?ID=6711
    3. Cohen, D. Reuters. Upticks in small business lending at Chase, Citi (2012). Retrieved from: http://www.reuters.com/article/2012/01/23/us-smallbiz-lending-idUSTRE80M1CA20120123
    4. Saphir, A. Reuters. Small business lending jumps in May (2012). Retrieved from: http://www.reuters.com/article/2012/07/02/us-usa-economy-paynet-idUSBRE8610DZ20120702
    5. Arora, R. Small Banks Are Making a Big Impact on Small Business Lending (2012). http://smallbiztrends.com/2012/07/small-banks-making-big-impact-small-business-lending.html