Essay of Small Business Loans Increasing – Is Spring Here?

Essay of Small Business Loans Increasing – Is Spring Here?

So it seems as if the big banks are adhering to the pledge they made to the US government back in 2011 to increase small business loans. Lend more to small businesses because they will be the key to bringing the US economy back from the brink. But do the headline stats show the real picture of what is going on here?

The headline stats are this:

    • Bank Of America has reported that it has increased lending to small businesses by 28% in 2012
    • Wells Fargo’s commitment to new lending increased 30% during the same period
    • Citigroup committed $17.5 billion to small business lending after making the pledge

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Are the big banks really committed to lending to small business?

The headline stats tell a good story. But what gets lost in the detail is that a large proportion of this increase in small business loans is in the form of credit cards, according to a recent article in American Banker. Term loans to small businesses by banks with a capital base of greater than $10 billion (the big banks), has been gently declining.

This makes logical sense because credit is now less available than it was before the global financial crisis. And banks have stricter regulations on lending to adhere to. Credit cards reap higher yields for banks than loans. They also require a less stringent credit process because they have lower limits than loans and the banks tend to have personal liability recourse. They are quicker, easier and cheaper for banks to approve.

It seems that the general public of borrowers perhaps haven’t caught up with what is actually required to get small business loans approved. The reasonable extension of tighter credit standards is that loan applications need to be more comprehensive.

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