In the past few months, many experts have celebrated loosening conditions when it comes to credit access for small businesses in particular. However, the fact remains that in many cases, these companies simply do not have access to lending, because while there has been slight improvement, banks are still keeping restrictions historically high.
Today, the number of business loans of $1 million or less – and therefore the ones most likely to be granted to smaller companies – is still about 14 percent down from the levels seen in 2008, just after the onset of the recession, according to a report from the Wall Street Journal. In fact, new data suggests that lending is still below the levels in 2005, when the brief boom period happened, in about 1 out of every 3 counties across the country. This comes even as commercial and industrial loan volume has risen by the double digits in each of the last four months, including July’s 11 percent increase.
However, the problem for many smaller enterprises in particular seems to be that even as banks keep lending relatively difficult for them to obtain, it seems larger companies are being given a lot more leeway, the report said. Through the end of March, businesses of all sizes are up 9 percent from 2008.
Why is this the case?
There are many reasons why banks might be a little bit reticent to extend credit to small businesses is that the economy took such a huge step back several years ago that they still don’t think they can justify the added risk, the report said. And this is affecting smaller firms in particular because, as Todd Anduze – director of the government-funded Small Business Development Center in Carrollton – told the newspaper: “Relationship lending is gone. Now, if you don’t fit into [a lender’s] box, you’re not getting that loan.”
Economists, however, point out that this kind of reluctance from banks to help small businesses obtain financing might actually be hurting broader economic recovery, the report said. In counties where the cutbacks were most significant, employment and the creation of new businesses has stagnated.
Owners who want to financially prepare their companies for future growth, and streamline processes so they might be able to obtain lending in the future, may want to consider finding more affordable small business insurance. Finding reduced costs for consultant insurance, for instance, could save them thousands of dollars annually, which can then be put toward other aspects of the company.