The economic improvements seen during the past year or more may now have many independent company owners dreaming bigger than they have at any point since the recession began, but their efforts to do so might have been stanched a little bit in 2012 thanks to an increased tightness among lenders with small business loans.
The total amount of money granted to small businesses on this type of financing dropped to a total of $587.8 billion on loans of $1 million or less through June 2012, down more than $19 billion from the numbers observed just a year earlier, according to new data from the U.S. Small Business Administration's latest annual Small Business Lending in the United States report. However, it's important to note that this decline was far smaller on an annual basis than the one observed in 2011, when small business lending had slipped 6.9 percent.
Part of the reason for this is that lending standards for all types of business lending, both large and small, remains somewhat high, though these have been easing a little in the past year, the report said. Moreover, projections from the National Federation of Independent Business likewise show that many companies may simply be holding off somewhat on their need for this type of financing.
Interestingly, too, small business borrowing was down across all loan sizes, the report said. However, as with the total amount of money lent on these financial products, the decline slowed somewhat in 2012, the report said. For instance, micro loans to both commercial real estate, and commercial and industrial businesses dropped 1 percent year-over-year, a significant improvement from the decline of 12.4 percent on the same basis in 2011. And while that dollar figure slipped, the number of loans themselves actually increased, to 11.6 percent improvement from the 4.3 percent slide observed a year earlier.
"Throughout the year, bankers reported easing their standards and terms on commercial and industrial loans to businesses of all sizes," the report's authors wrote. "Small business demand for C&I loans has been uneven in the last few years, which reflects the relatively tighter standards for these loans. Commercial real estate lending standards were eased as well, but the credit supply remained relatively tight compared with historic norms. Respondents to the Office of the Comptroller of the Currency's survey, which covers all major loan categories, reported a slowdown in tightening of underwriting standards for small business loans. The percentage of bankers easing small business banking underwriting standards was small – suggesting that the standards are still high."
Where are these loans coming from?
It may come as no surprise to small business owners that lenders of all sizes are still being tighter with their lending in general, but they may find success with some such institutions than others, the report said. For instance, lenders with assets of $50 billion or more only saw a decline in lending of 3 percent, but in all these lenders combined to grant just 3.64 percent of small business loans through the end of last June. Meanwhile, smaller firms were far more willing to grant this type of loan overall, with those with assets ranging from less than $100 million to about $9.9 billion combined to grant 51.3 percent of all loans to companies of this size.
Owners who want to increase their companies' reach may want to also consider the benefits of finding more affordable small business insurance options, including those for liability insurance, which can reduce their costs and make for a healthier bottom line as they undergo expansion efforts.