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Small businesses get more, but smaller, loans

Since the depths of the recession, small business lending conditions have been slowly improving, but the size of the loans is shrinking.

An annual report on bank lending to small businesses published yesterday by the Small Business Administration Office of Advocacy shows that while the number of loans to businesses in general has been steadily improving since mid-2009, lending to small firms has been slower to bounce back and the average small business loan size has continued to decline.

In an introduction to the 2012 research report, Winslow Sargent, SBA’s Chief Counsel for Advocacy, writes: “I can report that the overall picture looks better than it did a year ago. Although lending to small businesses was still down, the decline was less than in 2010 and 2011, an indication of progress.” Sargent predicts that year-by-year changes in small business lending will be evident as the economy continues to improve.

The SBA Office of Advocacy analyzes the lending patterns of national and local depository lending institutions and defines a small business loan by the size of the loan, not the size of the company receiving it. A small business loan, therefore, is any commercial real estate or commercial & industrial loan under $1 million, with "macro business loans" between $100,000 and $1 million, and "micro business loans" under $100,000.

SBA data indicate that small business borrowers are “losing ground in competing for business loans.” And that’s despite low interest rates and a steady 3.25 prime rate since 2009. But, as the SBA economists note, with persistent economic uncertainty, lenders remain cautious about lending and small businesses hesitate to take on debt.

Among the SBA’s specific findings:

• Total small business borrowing from depository lenders remained subdued, while large business borrowing increased. The value of small business loans outstanding declined by 3.1 percent in 2012, compared with 7.0 percent the previous year, while large business loans in excess of $1 million increased by 12 percent in 2012, compared with 5.8 percent in 2011.

• In 2012, the value of micro business loans was $138.2 billion, compared with $139.5 billion in 2011.

• Small business borrowers were less successful than large business borrowers in competing for business loans in 2012.

According to SBA, the majority of lending institutions supplying credit to small firms are small, traditional lenders. Non-depository lenders, such as credit unions and finance companies, have become increasingly important, according to SBA. The agency also reports that “although the banking industry has undergone major consolidation, the market for small business loans tends to be local in nature.”

For more details, as well as listings of the top small and micro business
lenders and rankings of banks by states and localities, download the 150-page report from the SBA website.

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