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BFS Capital Blog

Bank Lending May Be Up From Last Year, But That’s Not the Whole Story

August 26, 2014

The great recession (the general term for the economic downturn at the end of the last decade) hit small businesses especially hard. Sixty percent of job losses from that period came from small businesses, and have been the slowest to come back. But the biggest obstacle the recession sent small business was the lack of access to credit from banks.

And some say it has made a return. But has it really? And if not, what other options do small businesses have?

PayNet report from May of this year showed lenders lending to small businesses at a level 12.9 percent higher than the levels in pre-recession 2007. This June, large banks approved 20 percent of small business loan requests, a marked improvement from the 9 percent that rate was at last year. And while those numbers sound impressive, they don’t tell the whole story.

The economy has improved drastically overall in the past year. In turn, lending has increased overall. But the FDIC reported in 2012 that small business loans accounted for only 29 percent of all loans made that year, down from over 50 percent in the mid-1990s. In lending terms, this means that large banks are focusing their assets on larger companies with more assets as collateral, and still leaving 80 percent of potential small business owners without financing.

In addition, the FDIC reports that small business loans are still down 21 percent since the beginning of the financial crisis in 2008. So, yes, more loans are being made. But not like they used to be.

We can kick around numbers all we like but, at the end of the day, small business owners say getting money for a small business is no easy task. A 2014 Wells Fargo survey of small business owners conducted the second quarter of this year found 24 percent claiming getting credit was “difficult” compared with 13 percent a year ago. And only a quarter of respondents claimed getting credit was easy compared to half in 2007.

And the banks themselves admit that their lending to small businesses isn’t as easy as it once was. The Federal Reserve’s Senior Loan Officer survey showed slight loosening of loan conditions to small businesses over the past four years, but at about half the rate for small businesses as large ones.

That same survey also found that fewer small business owners are borrowing now, with only 28 percent reporting borrowing the previous 3 months, compared with 32 percent in 2007.

So with borrowing from banks still a difficult task for small businesses, where are you to go when you need cash to grow?

Well, the U.S. Census Bureau reports that 60 percent of small business owners get that money out of personal savings. While certainly an easy way of getting funding, personal savings are not always available and not always advisable. And ten percent reported getting that money from a credit card.

But, increasingly, people have begun turning to what are known as alternative lending sources like BFS Capital. With less-stringent credit requirements and a streamlined application process, we’re able to provide short-term business lending solutions at a more frequent pace than most traditional lenders.

Even though lending has gotten slightly easier for small businesses since the height of the great recession, when it comes to getting help from large banks you still face an uphill climb. But with an ever-growing field of alternative lending sources, you can still get the capital needed to help your business grow, and hopefully one day become so large credit from large banks is never an issue.

Image courtesy of jesadaphorn /