Capital & Credit Watch: The Mixed Story on Small Business Loans

By at 2 August, 2016, 3:07 pm

by Raymond J. Keating-

It's a mixed story when it comes to small business loans. While they have increased, lending is still far below pre-recession levels.

Banks loans for small business point to some continued growth, but lending remains far below pre-recession levels.

The Federal Deposit Insurance Corporation (FDIC) serves up quarterly lending data, including bank loans for small businesses. The latest numbers are for the first quarter of this year, and point to some continued growth, while still coming in well below the pre-recession highs.

Consider the following key points:

• Small business commercial and industrial loan balances (that is, loans of less than $1 million) expanded in the first quarter of this year. The first quarter (as of 3/31/2016) level came in at $323.5 billion, up from $319.6 billion at the close of the fourth quarter 2015, and $306.4 billion a year earlier. Growth has continued since the fourth quarter of 2013, and is up by 16 percent versus the recent low in the third quarter 2012. However, the most recent level of small business commercial and industrial loan balances were still down compared to the 2008 high of $336.4 billion.

It also must be noted that the small business share of business loan balances has fallen rather steadily from 35 percent in 2004 to 20 percent in 2016 first quarter.

• Similarly, the number of small business commercial and industrial loans rose in the first quarter, coming in at 23.6 million, up from 23.4 million in the fourth quarter 2015 and 22.7 million a year earlier. The recent low was hit in the fourth quarter 2010 at 19.73 million. Unfortunately, the number of small business commercial and industrial loans remains short of the high of 25.4 million set in 2008.

• Unfortunately, small nonfarm nonresidential property loan balances have been on a lengthy decline, registering $286.1 billion in the first quarter 2016. That compares to the recent high of $375.05 billion in 2008. Previously, growth was continuous from 1995 to 2008.

In contrast, total nonfarm nonresidential loan balances have grown since the third quarter of 2011 – from $1.056 trillion to $1.252 trillion in the first quarter this year. So, the small business share has shrunk notably, from 30 percent to 23 percent over that period. However, that is part of a longer trend down, with the 1995 share registering 52 percent.

• The number of small nonfarm nonresidential property loans, however, actually has increased in the last two quarters – from 1.281 million in the third quarter 2015 to 1.286 million in the fourth quarter and 1.459 million in the first quarter 2016. Increases in the fourth quarter 2015 and first quarter 2016 were the first moves up seen since 2007. The 2007 high stood at 2.46 million.

The story on small business bank lending continues to be rather mixed. The bottom line, though, is clear: While growth in recent years is welcome, it has not been strong enough, with small business bank lending failing to get back to its pre-recession, or-pre-credit-meltdown, levels. The causes for this are many, of course, but most certainly include a tax and regulatory environment not conducive to entrepreneurship, small banks and small businesses.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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