News for Credit Professionals       NACM-SE

Small Business Lending Sliding Again

Findings of a new study could foreshadow a continuation of the heightened need for business-to-business credit and financing through sources other than traditional lending institutions, as both approval rates and demand for bank loans are down.

Large financial institution-generated small business loan approvals declined to 10.6% in April, said a new study by Its Small Business Lending Index found, in a 1,000-loan sample size, bank approvals of 10.9% in March and 11.6% in April 2011. Similarly, the rate at small banks shrank to 45.9%, down nearly two full percentage points from previous months. Credit unions reported a decrease, albeit a smaller one, as well.

Also noted in the survey is small business' newfound hesitancy to seek loans. The Biz2Credit survey found a 5.4% drop in demand in April, the first time in over a year that such a decline was apparent. A number of factors could be in play: from the March expiration of a Small Business Administration program which assisted in the area of guarantee fees to sputtering domestic job growth and economic uncertainty abroad.

"The disappointing April jobs report in which only 115,000 new jobs were created—when the expectation was much higher—is an indication that the economy is slowing down," said Rohit Arora, CEO of Biz2Credit. "High oil prices as well as the European crisis intensifying have combined to cause both borrowers and lenders to proceed with caution. The flow of capital may be slowing, which is a cause of concern."

- Brian Shappell, CBA, NACM staff writer