Two reports last week regarding the availability of bank loans to small businesses seem to contradict one-another. On Tuesday, the Wall Street Journal reported on research from the Federal Reserve Bank of Cleveland that indicates U.S. small business lending by banks has not regained ground lost during 2008 financial meltdown and subsequent recession and slow recovery. The report’s conclusion was based on data that shows loans to small businesses are a smaller percentage of total bank lending.


Banks held roughly $590 billion of small-business loans in the third quarter, according to the Federal Deposit Insurance Corp., 17% below 2008 highs. “The data show that the volume of small loans, those under $1 million, dropped significantly between 2008 and 2012, and has barely recovered,” Ann Marie Wiersch, author of the report.

Without an explanation of why a growing percentage of bank business loans are going to big businesses rather than small, the report appears to fall in line with a general narrative that suggests banks are rejecting small business loans in order to make that money available for loans to large businesses.

We’ve even joined in this narrative. Last August, we reported on a study by Harvard Business School professor (and former SBA administrator) Karen Mills claiming that banks, even community banks, have been subject to regulatory and structural changes that continue to cast doubt on whether or not traditional bank credit will ever recover for small loans.

The “banks don’t want to lend to small businesses” narrative is also central to the investor pitch of various “peer-to-peer” lending companies and “alternative banks.”

But according to a second report issued last week, the December report of the long-running monthly surveys conducted by the NFIB Research Foundation, “Only 3 percent (of small business owners) reported that financing was their top business problem.” What’s more, the percentage of small business owners reporting that “all their credit needs were not met” is only 4%, an historic low in the survey. Twenty-nine percent of owners reported all credit needs met, and 54% explicitly said they did not want a loan. The survey reported that 33% percent of all small business owners reported borrowing on a regular basis, up 5 points and high compared to recent experience.

So what is going on?

Again, the research from the Federal Reserve Bank of Cleveland is focused on reporting the what of small business bank lending: that loans to small businesses are a smaller percentage of total bank loans to business. The research from NFIB, while seemingly contradictory, may reveal a part of why bank loans to small businesses are down: they aren’t seeking such loans.

The why likely has additional “all of the above” reasons. Banks are likely more risk averse and subjected to more regulations. Small businesses are likely choosing not to borrow money. Perhaps small businesses that present the most risk to traditional banks are being encouraged by banks to use alternative sources–indeed, such companies have affiliate and distribution partnerships with banks that provide the bank finder’s fees for such loan leads.

Bottomline: Access to credit is always critical to small businesses, but small business credit is currently not a crisis. Any small business owner who has been in business through the ups and downs of economic cycles knows that banks want to lend you money when you don’t need it, and don’t want to lend you money when you do. Or so it seems.

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