Small business lending still not where it should be

Small business lending still not where it should be

Over the last few years, one of the big issues that many small business owners across the country faced with regularity was that their access to credit was relatively minimal. The improving economy has changed these conditions for the better, to some extent, but experts generally believe more can be done in this regard.

Certainly, while the overall economy has improved – taking the bottom lines of many smaller companies nationwide with it – that really isn’t the case in terms of small business lending overall, according to new data from the Federal Reserve Bank of Cleveland. Plenty of data shows that through the end of June 2014, bank lending to businesses of all sizes was up some 31.4 percent from the numbers seen in 2005, prior to the start of the economic downturn.

However, that hasn’t been the case for small businesses in particular, which have actually seen a drop of 2 percent over those nine years, the report said. Meanwhile, lending to big businesses is up 44.3 percent.

Why is this the case?
To be fair to financial institutions, demand among small businesses in the first place really hasn’t been that high for years, the report said. The general optimism among small businesses has been in the doldrums since the recession began and still hasn’t recovered fully by many measures, which in turn has a negative impact on owners’ interest in seeking financing for their companies. Likewise, reported sales data shows that companies are closer to pre-recession levels in this regard, but still not quite there yet.

“While it is not clear that these trends are driven by weaker borrowing or limited access to loans, it is evident that businesses need adequate credit to succeed and grow,” wrote Ann Marie Wiersch, a senior policy analyst in the Community Development Department at the Cleveland Fed, and author of the report. “As such, policy makers should not lose sight of the trends related to small business credit, even with the recent positive reports showing improvements.”

Owners who want to put themselves in the best position to obtain financing when necessary might want to consider the importance of cutting their expenses – including those for small business insurance – as a means of improving their bottom lines. For instance, if they can find more affordable general liability insurance, they might be able to save thousands of dollars annually.