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Is Small Business Lending Up, Down, Left or Right?

Curious about what’s happening in small business lending in the country? If you read all of the conflicting reports out there, the answer is:  it depends.  It’s almost as confusing as the economics lectures I used to struggle through to stay awake in business school.

Here Are Some Recent Headlines!!!

Reuters reports that small business lending is up 18% in 2011

MultiFunding (that’s us) reports that US Banks reduce their small business loan exposure in q3 2011 by $4.84 billion

Biz2Credit announces that small business loans are up in small banks/private lenders and down in big banks

Scratching your head?  I would like to try to explain what I believe the pros and cons of each argument are – and the fundamental question that no one has answered yet.

  • The Reuters/Paynet survey tracks the new loan origination at 200 lenders across the country and puts them in an index.  It’s an interesting way to monitor the activity of these lenders, but unfortunately, we don’t have any way to know who the lenders are because they stay anonymous. So it’s very difficult to tell if this is a representative sample of small business lending.
  • We like our work at MultiFunding where we track the small business loan balances of all the FDIC regulated banks in the country.  Yet the strength in our data is also its weakness – we only track bank loan balances, and banks regulated by the OCC or Credit Unions are not included.  So any loans made by private lenders and OCC regulated banks don’t count.
  • The Biz2Credit survey tracks the loan activity of 1,000 of their clients across both banks and private lenders.  So, on the one hand, this data tells a broader story then ours does.  But on the other hand – there is a fundamental weakness because the sample comes from small businesses who Biz2Credit services.  These may or may not be representative of overall small business lending activity.

In a nutshell, we still have work to do to answer the question about what’s happening in small business.  All three studies discussed above tell only part of the story.  The reality of the recession is that tightening bank standards have sent millions of small business owners scrambling into high interest private money loans.  It’s impossible to accurately guess what percentage of loans are happening in the private market because there is no tracking.

We must find ways to come up with an agreed upon definition of what a small business loan is, and find ways to track lending activity across all lending platforms.  Otherwise, politicians and business people will be left guessing about this critical economic indicator.

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