As unemployment falls and the economy grows, small business lending across the country is recovering. But it?s coming back slowly.
By some accounts, small businesses have come out of the recession with stronger balance sheets, less debt and better sales prospects.
At the same time, banks have capital to lend after years of cutting back. Some small business bankers say loan activity has been gaining strength.
The country?s banks held an excess of $2.5 trillion in business loans at the end of the second quarter, up 11 percent from 2008, according to the Federal Deposit Insurance Corp.
Recovery in the small business loan market has not been as quick. For loans of $1 million or less, activity is still below pre-recession levels.
Banks held $589.7 billion in small business loans as of the second quarter. That?s up nearly 2 percent from last September, according to the FDIC. At the peak in 2008, banks held $711 billion in loans to small businesses.
?For any meaningful recovery in the small business and job market in the U.S., lending from banks has to come back,? said Rohit Arora, chief executive of Biz2Credit, an online marketplace for small business funding.
Arora said he?s starting to see steady momentum in the small business lending market. Loan approval rates at big banks reached a post-recession high of 20.4 percent in August, according to the Biz2Credit Small Business Lending Index. That was up from 17.6 percent a year ago.
Rather than banks lowering their underwriting or credit criteria, approval rates have gone up because small businesses have more stable finances as well as improved personal and business credit, Arora said.
?What happened over 11/2 years is the health of businesses has improved. So typically ? if big banks are going to approve a loan, you need the last three years of financials,? he said. ?From 2011 to 2014, numbers look better now. The recession years dropped off.?
Still, some small business owners remain wary about the economy and are not eager to borrow money.
In general, larger companies have recovered more quickly from the recession than small businesses, said Greg Clarkson, Dallas-based executive vice president and Small Business Administration division manager for BBVA Compass Bank.
?They continue to be cautious in their approach to taking on long-term debt,? Clarkson said.
For the right borrowers, though, low interest rates make this a good time to seek capital, local bankers say.
?It?s as good as I?ve seen in the last 15 years,? said Mike Litton, senior vice president and director of SBA lending at Dallas-based PlainsCapital Bank. ?I?m aware that there are folks that say they can?t get capital. They may be in a different market. We?re in Texas.?
Wells Fargo, for instance, plans to extend $100 billion in new lending to small businesses by 2018.
Robert Schapira, Wells Fargo?s small business strategy leader for the Southwest region, said the bank posted a double-digit increase for small business lines of credit under $100,000 in the second quarter.
Source: MCT Inofrmation Services