Bank Lending to Small Business: Are They or Aren’t They?

Are banks lending to small businesses? The latest signs point to more lending. But just how much more? It depends who you ask.

The Small Business Administration is reporting an uptick in lending, as government guarantees spur more activity in the secondary market, enabling banks to unload the loans. As my colleague Raymund Flandez reported, the volume of new SBA-backed loans has risen more than 20% since mid-March, with more than $1.3 billion in new loans approved, according to Karen Gordon Mills, the new SBA administrator.

The latest Federal Reserve lending survey isn’t quite as rosy – though it’s still encouraging. When the Fed surveyed loan officers in April, a smaller number of bankers said they were tightening their lending standards compared with a few months earlier. For the first time since January 2008, the proportion of banks reporting tighter standards fell below the 50% mark.

It’s still tough out there, though. When you drill down to small-business lending, nearly 43% of banks said in the past three months, they toughened up on businesses with less than $50 million in annual sales. That’s the 10th straight quarter of tightening for small businesses, but it’s down significantly from the January survey, when 69% of banks reported tougher standards.

Many small businesses still don’t have the cash flow and collateral required to snag a bank loan in this environment. According to the Fed’s data, more than two-thirds of banks said loan demand from small businesses was “moderately” or “substantially” weaker in the three months ending in April.

Readers, have you tried to secure new funding recently? Any success stories – or horror stories?

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