The Great Recession’s Effect on Small Loans to Business

Small loans to businesses continue to shrink, falling to $613 billion dollars at the end of 2011, the Small Business Administration (SBA) reports.

The dollar value of small loans is down substantially since the start of the financial crisis and Great Recession. SBA data reveals that the inflation-adjusted value of business loans of less than $1 million shrank by 19 percent between 2007 and 2011. As the figure below shows, we have yet to see any recovery in the real value of small loans to business.

Source: Created from data from Small Business Economy 2011

The amount lent has declined in large part because banks are making fewer loans. While the average value of loans shrank 6.7 percent since 2007, the number of loans fell 13 percent, from 24.5 million to 21.3 million. The SBA data doesn’t tell us whether all small businesses now have fewer loans or fewer small companies are borrowing, but other data suggests that the latter is true.

Much of the drop in loan volume comes from a decline in real estate lending. As probably would surprise few people, the number of commercial real estate loans dropped 39 percent between 2007 and 2011, a much larger decline than the 10 percent reduction in the number of commercial and industrial small business loans.

However, the large decline in the number of commercial real estate loans was not reflected in a decline in the value of the loans. The real dollar value of small commercial real estate loans fell only 17 percent between 2007 and 2011, less than the 20 percent drop in the value of real value of commercial and industrial small business loans.


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

14 Reactions
  1. Thanks for the data, Scott.

    I wonder if there is a way to determine the percentage of small business loans that were approved for start-ups. The data never seems to reflect that, and it’s frustrating.

    There’s a huge difference in applying for a loan as an existing small business owners vs. doing the same thing as a prospective small business owner.

    The Franchise King®

  2. Scott – I met with a SBDC in Texas just last week and the numbers show that many of the major banks have backed away from lending to small business completely. We are a solution for small business capital.

    @Joe I believe the number to be in the single digit range. We are starting a financial revolution for small business entrepreneurs at Money for Main Street and encourage micro businesses and new businesses to look to micro loans and crowd funding as a solution.

  3. I find that one thing that can make a difference for some businesses needing a loan — documentation. Business plan, outline how you will spend the money and pay it back.

    Companies that have little collateral, especially those in services, have a harder time getting loans.

    Businesses also need to check out small, local and community banks — not just the big ones. It may also be worth exploring alternative lending options such as crowdfunding and invoice financing.

    It’s also wiser to finance if you want to grow your business rather than maintain it.