Has Small Business Lending Increased?

Is small business lending by big banks increasing or getting more difficult?  CrainsNewYork.com presents differing views from business experts.  Rohit Arora, Biz2Credit’s CEO, says lending has become sluggish.  He cites a survey of Biz2Credit small business customers showing a drop in lending by big banks.  Biz2Credit is a company that matches small businesses with lenders.  John Paglia of Pepperdine University also says the recent decrease in small business lending is true for all lending institutions of any size.  Representatives of big banks, however, do not agree with these statistics.  They claim they are committed to increase lending to small businesses.  Recent regulatory changes are also forcing banks to boost their lending to small businesses in the next two years or so.

At banks with more than $10 billion in assets, 10.2% of loan applications from small businesses were approved in May, down from 10.6% in April—and from 11.7% in January and February, according to surveys of small business customers of Biz2Credit, a Manhattan-based company that matches small businesses with lenders.

Although regional data aren’t available, according to Rohit Arora, Biz2Credit’s CEO, the trend is the same for the New York area. “Lending by big banks has become considerably more sluggish,” he said, noting that at the same time, other lenders, especially alternative ones, are rushing in to fill the gap.

To be sure, studies showing a recent decrease in bank lending don’t just involve the big guys. According to research by John Paglia of Pepperdine University, 31.8% of small businesses successfully got bank loans from institutions of any size in April, compared with 48.5% back in October. And Biz2Credit shows that approvals by small banks dropped to 45.5% in May from 47.5% in January.

Representatives of several big banks also say they’ve increased their commitment to small business lending. As for Bank of America, its “small business approval rates have been consistent throughout the first four months of 2012 and continue to be higher than last year’s numbers,” a spokesperson said.

On the other hand, according to Mr. Arora, pressures from regulatory changes are likely to force large banks to boost their small business lending over the next two years or so. He points to Basel III, global regulatory standards passed in 2011 that increase requirements for how much the largest institutions have to hold in liquid assets. To fuel those larger asset bases, banks will have to make more loans.

In addition, the so-called Volcker Rule, a section in the Dodd-Frank bill that forbids banks from using money from insured deposits to finance proprietary trading, will also force them to step up lending to make money. Loan approval rates could double over the next two years. …

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