The Dip in Small Business Loans: A Recent Phenomenon?
There is no question that it is difficult for small business owners to procure loans in today’s economy. The media has been abuzz with reports on the freeze of business credit, and the aftermath of the great recession has property and other forms of collateral devalued to the point that they are no longer sufficient for securing business loans. However, the Washington Post recently put out an article positing that the decline in business lending is not an entirely new phenomenon. The Cleveland Federal Reserve has released charts indicating that small business lending from banks has been on the wane since as far back as the mid 90’s when the economy was strong. Traditional banks are cutting back the percentages of their portfolios that include business funding, and evidently have been doing so for over a decade. According to the Federal Reserve, this slow downward trend indicates that there is not likely to be a thaw in the lending practices of banks towards small business owners, at least not in a meaningful and permanent sense. The chart above details the percentage of non-agricultural and non-residential loans over time. These types of loans are used as a proxy for small business loans when analyzing trends in the lending climate. As the chart clearly demonstrates, the percentage has been steadily dropping almost year by year, with the current percentage hovering underneath 30%. The decline in small business lending from banks has necessitated a rise in alternative business funding. Horizon Business Funding is a leader in the merchant cash advance space, a financial product that allows business owners who are unable to obtain bank loans to secure capital for business expansion and improvement. With more businesses being created in the US, yet less funding made available, it falls upon companies outside of the traditional banking sphere to provide the expansion capital that is required for businesses to continue to grow, driving job creation and economic recovery.
Photo Credit to The Cleveland Federal Reserve