Think the Recession is Over for Small Business Lending? Think Again

  • August 25, 2014

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Business has been picking up across the U.S. since the 2008 recession, but banks have been slow to return to the lending rates they hit pre-recession. Almost eight years after the recession hit, small business loan rates have still not rebounded to the rates they hit in 2005.

Small-business lending in the U.S. remains behind most other types of business and consumer loans. According to The Wall Street Journal, “At the end of the first quarter, banks held $585 billion in loans to small businesses, up 1% from last September but still 18% less than the peak of $711 billion in 2008, according to the Federal Deposit Insurance Corp.” In comparison, total loans to all businesses in the U.S. came to $2.48 trillion as of March 31. That numbers is up 9% since 2008.

According to the Federal Deposit Insurance Corporation, “At the end of the first quarter, banks held $585 billion in loans to small businesses, up 1% from last September but still 18% less than the peak of $711 billion in 2008.” It seems that a contributing factor to the slow recovery of small business lending has to do with lost relationships. From The Wall Street Journal:

Following the bank failures and a push by many surviving banks to rein in and simplify their loan underwriting, “relationship lending is gone,” says Todd Anduze, director of the government-funded Small Business Development Center in Carrollton, which advises small firms on financing and business planning. “Now, if you don’t fit into their box, you’re not getting that loan.”

Many small banks failed during the recession and now banks are generally taking more precautions. Another issue is that business owners, rattled by the financial instability from 2008, are hesitant to take on debt. In that instance, small business owners are preferring to grow slower instead of taking on the risk of taking out a line of credit.