PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Small Business Lending Data – A Troubling Decline in Smallest Loans

By at 7 October, 2019, 7:29 pm

by Raymond J. Keating-

In the latest small business lending data from the FDIC’s latest quarterly banking profile, some troubling questions emerge.

First, small commercial and industrial (C&I), and nonfarm nonresidential (properties) loan balances came in at $644.5 billion at the close of the second quarter 2019. That was up compared to $632.5 billion a year earlier, and $618.7 billion two years earlier. Growth has occurred over four of the last five years, but it hasn’t exactly been robust.

Data Source: FDIC

Second, in fact, it must be kept in mind that the value of small business loans outstanding hit a high of $711.5 billion in mid-2008, and subsequently declined for five straight years. So, the current level of small business loans still has yet to return to the level registered 11 years ago.

Third, the story on the number of small business loans requires closer attention.

The number of small C&I, and nonfarm nonresidential loans registered 23.44 million at the close of the second quarter 2019. That actually was down from 26.42 million in mid-2017 and 26.01 million in mid-2018 – that is, two straight years of decline.

Source: FDIC

The high, again, had been registered in mid-2008 at 27.22 million, and subsequently declined for three years, meandered for another three years, and then resumed growth from 2014 to 2017.

So, what’s behind this recent decline in the number of small business loans? Well, a long steady decline in the number of nonfarm nonresidential (properties) loans has continued – dropping from a high of 1.87 million in 2007 to 1.19 million in 2019.

But the bulk of small business loans are C&I, and those came in at 25.17 million in mid-2017, 24.79 million in mid-2018, and 22.25 million in mid-2019. These loans had registered 25.38 million in mid-2008, subsequently declined, and resumed growth, again, particularly from 2014 to 2017.

So, what’s been the story since 2017?

While the number of C&I loans have continued to increase at levels between $100K and $250K, and between $250K and $1MM, the smallest C&I loan levels – below $100K – declined from 24.12 million in mid-2017, to 23.69 million in mid-2018, and to 21.10 million in mid-2019. That mid-2019 level stood just below the level registered in mid-2014. So, it is the smallest loans – arguably to the smallest businesses – that have suffered.

The overall story regarding small business lending remains mixed-to-positive – especially when looking at recent history. But the story on the smallest small business loans is deeply troubling, and reflects at least in part the decline in both the level of entrepreneurship and the number of small, community banks.

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

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