Friday, July 1, 2011

More on Small Business Lending

Here's more information on small business lending, this time from the Wall Street Journal:

"Another lending analysis, by the Federal Reserve Bank of Kansas City, shows that big banks' outstanding loans to small businesses dropped 14% between March 2010 and March 2011, while loans by smaller lenders fell 3%."

From the same WSJ article, "March data from the FDIC shows that commercial and industrial loans of less than $1 million, which are generally issued to small firms, dropped 10% from a year earlier."

How is that? Earlier today I posted excerpts from an article stating that small business lending is improving. This one said it's not. My experience says it is. Perhaps this quote from the article helps to shed some light on the dichotomy: "Commercial and industrial lending, an indicator of business-loan demand, totaled $1.26 trillion in May, up 3% from a year ago, according to the Federal Reserve."

What's happening is that larger small businesses - those with revenues of $5 -$10 million and more now have access to more loans and financing institutions than in 2010 and thus, more of these are obtaining more loans. (Do you like my overuse of the word "more" to make a point?) These entities typically have good financial tracking systems in place, a strong customer base, and a strong business history that support the loan request. Businesses with smaller revenues typically don't have the same viability and therefore aren't as attractive as loan candidates. As banks comply with regulatory demands to retain higher capital reserves and justify its loans, the lack of viability continues to be an issue.

But all is not lost. This article states that banks ARE lending - to those who fit a certain profile. You just have to shore up your operational and financial infrastructure so you fit that profile.

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