Is Small Business Lending Really Ramping Up?

Are banks becoming more willing to lend to small companies? In recent months, most of the major banks have announced intentions to increase small business lending, to hire additional staff to deal with small business loans, and to give small business loan applications they had previously rejected a“second look.”

And in fact, recent statistics bear out that those intentions were followed up with action. In the third quarter of 2010, theWall Street Journalreports,Wells Fargoissued $3.9 billion in small business loans, up from $3.3 billion in Q3 2009;Bank of Americamade $5.7 billion in small business loans, up from $4.1 billion in Q3 2009; and Chase made $2.7 billion in small business loans, up from $1.9 billion in Q3 2009.

But while at first glance these numbers may seem promising, they don’t tell the full story. Bankers acknowledge that most of these loans are going to bigger small businesses—those with between $1 million and $20 million in sales. That means there are plenty of small companies seeking capital and not getting it. According to a study released in October by theFederal Reserve Bank of New York, 59 percent of small businesses had sought financing in the first half of 2010—but more than three-fourths of those got only “some” or “none” of the money they wanted.

If the banks say they’re eager to lend, but entrepreneurs say they can’t get financing, what’s the disconnect? It appears the entrepreneurs who fail to get loans aren’t the “right” kind of entrepreneur. According to the same Federal Reserve Bank study, during the first half of 2010 the businesses that were most likely to get bank loans had a five-year track record, showed positive revenue growth, and had self-financed during the lowest points of the recession.

Bankers cited by theWall Street Journalacknowledge that they are being more selective about companies’ creditworthiness; banks are leery of being burned. Banks are also focusing on industries less affected by the recession, such as health care, while entrepreneurs whose overall industries still hurting from the downturn—such as restaurants—may have trouble getting money even if their businesses are growing.

There may be other factors at work here. Despite the large percentage of entrepreneurs who sought loans in 2010, I think many entrepreneurs are gun-shy about taking on any debt until the economy stabilizes further. With memories of banks calling in loans and pulling lines of credit still fresh in many small business owners’ minds from the early days of the recession, plenty of entrepreneurs are unwilling to put themselves at risk again.

Those who have found ways to get by for the past two years without turning to outside sources may see little reason to do so now. But pulling this economy permanently out of the doldrums will require more than“getting by” –it will require growth and expansion, both of which require access to capital.

What’syourtake on the capital crisis? Is it ending, is it over or is it still affecting your business? I’d love to hear what solutions you’ve found when the banks say no.

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