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Dissonance Between Big Banks & Small Business


Bank lending has been falling steadily since 2008, according to the federal Small Business Administration's Office of Advocacy. The SBA tells us that banks are loosening their lending standards for small businesses. Yet even under intense political pressure to get more cash into the hands of entrepreneurs and small business, and while sitting on loads of cash after receiving billions in bailout money, not much of the funds seem to be trickling down.

During 2009 and 2010, larger banks - defined as those with assets of $50B or more - pulled back to a greater degree than their smaller counterparts. And so it goes: large bank lending decreased 4.9% in the first quarter of this year, not only continuing the trend but accelerating it as well. Mid-sized banks now stand alone in showing an increase in lending. While lending parameters are loosening, overall new loans are shrinking.

So where's it all going? A lot of it depends on how you crunch the numbers. Banks tell us they actively search for deals, and some will tell us real funding events are up. But according to CNN, bank lending to small businesses shrank to $15B in the first quarter of this year. Lending has been falling on a yearly basis since 2008, when $711.5B in loans was outstanding. Compare recent figures against outstanding loan totals of $609.4B at the end of 2010 and we're left with downward movement referred to by analysts as "plummeting." The decline is rapid, and the decline is accelerating.

The SBA's Office of Advocacy will begin breaking out data on a quarterly basis, rather than its historical practice of crunching such numbers annually. The idea is to more quickly determine why dollars are not getting into the hands of small businesses. Are the banks hoarding cash? Is small business not requesting loans like they were just three years ago? If not, why?

To our Portland small business clients, this shouldn't be tough to figure out: Small businesses are sitting on their hands nervously, uninterested and nervous about taking on more debt. Until consumer confidence picks up, entrepreneurial confidence will likely remain dormant as well.

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