Has Small Business Access to Credit Improved?

Almost everyone agrees that small business borrowing plummeted during the Great Recession. The authoritative source on the topic, the Federal Financial Institutions Examination Council (FFIEC), reported that the dollar value of bank loans to small businesses declined 47 percent from 2007 to 2009.

But the economic recovery began in June 2009. In theory, small business borrowing should have come back since then. Has it? Unfortunately, the FFIEC hasn’t yet released the hard numbers on small business bank loans, so we have to look at other sources to divine the trends.

Different sources tell conflicting stories. Consider the question: Are small businesses returning to credit markets? A survey conducted in October of last year by the Gallup Organization found the answer to be “no”. The share of small businesses seeking credit declined from 55 percent in 2009 to 48 percent in 2010.

However, the Federal Reserve’s survey of senior bank loan officers indicates that small business’s demand for loans increased over the past year, with more loan officers reporting rising demand than falling demand in January 2011.

We also have mixed signals about whether small businesses are getting the capital that they need. The Gallup survey revealed that small companies seeking credit were more likely to get it in 2010 than in 2009 and that they received more of what they asked for in 2010. However, the National Federation of Independent Business’s (NFIB) monthly survey of its members indicates that the share of small businesses whose borrowing needs were met was 2 percentage points lower in January 2011 than in June 2009.

Banks and small business owners also have different perceptions of how hard or easy it is to borrow these days. After a tremendous tightening of loan standards during the recession, the share of senior bank loan officers reporting a loosening of small business loan standards has increased over the last year.

Small business credit

However, small business owners don’t perceive a loosening of credit standards. The Gallup Organization poll, conducted in the fall of 2010, found that nearly one third of small business owners thought that obtaining credit had become harder in the previous 12 months, while only 4 percent believed it had become easier.

In short, the conflicting stories make it difficult to tell if small business access to credit has improved in the past year.

Maybe I should look at the bright side. The lack of agreement that small business access to financing got worse in the past year means that the situation is improving. Before the recovery started everyone agreed that small business access to credit had deteriorated.


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.

8 Reactions
  1. Thanks for this important update.

    I think that there’s an incredible opportunity here; an opportunity for small business owners who’ve received small business loans to share their stories with us.

    Another opportunity would be for some of the banks to write about some of their recent successes. (The ones that involve specific examples of loans that were granted, but told in a human way.)

    Skeptical me doesn’t think that there are that many stories to tell.

    Or, are there?

    The Franchise King®

  2. What is it about government agencies taking months, sometimes years, to release their findings? Generally it seems like the disagreement on conditions stems from who they are asking. Until the hard numbers are out, it will probably remain a mixed bag of opinions.

  3. It looks that way, but there’s another dip at the end of that graph.

    Interesting times for small businesses…

  4. Hello Scott,

    We have an election coming up here in Ireland this week and the consensus is that the banks are not lending to SMBs.

    But that’s not totally true. They are lending but charging approx 9% interest which is prohibitive for most everything.

    So, are they lending? Yes.

    Can you afford a loan? No.

    They have a huge cashflow issue themselves with inter-bank lending and until the markets stabilize it will quite a while become the purse strings are loosened.



  5. As a commercial mortgage consultant that talks to banks and borrowers all day long, there are certain areas that have improved, such as financing for purchasing commercial real estate. But other areas that remain dead such as getting lines of credit or consolidating unsecured loans.