Four Big Points on Small Business Lending

By at 29 August, 2018, 9:28 am

Small Business Insider


by Raymond J. Keating-

The FDIC recently released its latest quarterly banking profile, which includes a look at the small business aspect of lending. Four big points are worth highlighting.

Profits and Revenues Up

First, profits and revenues for banks were up in the second quarter of this year, with the recent corporate income tax rate cut playing a part in boosting bottom lines. As the FDIC noted, “The 5,542 FDIC-insured commercial banks and savings institutions reported net income of $60.2 billion during the three months ended June 30, an increase of $12.1 billion (25.1 percent) from a year earlier. Higher net operating revenue (the sum of net interest income and noninterest income) and a lower effective tax rate contributed to the increase in industry net income.”

Community Banks Performing Well

Second, community banking performance was strong. Again, according to the FDIC, “More than seven out of ten community banks (73 percent) reported higher net income compared with a year earlier. Reports from 5,111 insured community banks reflected net income of $6.5 billion—up $1.1 billion (21.1 percent) from second quarter 2017—as higher net operating revenue and lower income tax expenses offset an increase in noninterest expense. Absent the benefits of a lower corporate tax rate, estimated quarterly net income would have been $6.1 billion—up 15.4 percent from the $5.3 billion reported in second quarter 2017.”

Loan and lease growth was stronger for community banks versus larger banks over the past 12 months, including 60.5 percent of community banks increasing small loans to businesses.

A Look at Small Business Loans

Third, that leads up to a look at small business loans. Small commercial and industrial, and nonfarm nonresidential (properties) loan balances came in at $632.5 billion in the second quarter. That was up versus $623 billion at the end of 2017, and compared to $618.7 billion a year earlier. Keep in mind that the value of small business loans outstanding hit a high of $711.5 billion in 2008, and subsequently fell for five straight years, falling to $579.1 billion in the third quarter of 2013. Growth subsequently resumed and has continued, though unevenly.

The story as to the number of small business loans, however, differs a bit. The number of small commercial and industrial, and nonfarm nonresidential loans registered 25.99 million in the second quarter. That was up ever so slightly from 25.97 million from fourth quarter 2017, but down from the year earlier level of 26.42 million loans.

In fact, the number of small business loans has basically stagnated since the second quarter of 2016 (26.06 million). For good measure, the number of small business loans remains below the high of 27.22 million loans hit in 2008.

Small Business Lending a Mixed Story, But on the Upswing Generally

Fourth, it also must be noted that within these small business loan numbers, small commercial and industrial loan value and number of loans resumed growth starting in 2013. In fact, C&I loan value finally broke above the 2008 high in the last two quarters of data reported (fourth quarter 2017 and second quarter 2018). However, nonfarm nonresidential loan value and numbers have continued to decline.

The overarching story regarding small business lending is mixed-to-positive – with the plusses reflecting stepped up incentives for business investment and expansion. In addition, legislation signed by President Trump on May 24 – the Economic Growth, Regulatory Relief and Consumer Protection Act – has made changes to Dodd-Frank rules for banks by “right-sizing” regulatory requirements for certain banks and exempting small banks from specific requirements involving loans, mortgages, and trading, among other measures. Hopefully this will help to further open the spigot to capital that small business need.  Capital is needed to re-ignite entrepreneurship in general, which is obviously tied to small business lending.


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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