Small Business Loans Drop by $15 Billion in Q1

Bank loans outstanding to small businesses declined by 2.4 percent, or $15 billion, in the first quarter of 2011, the Small Business Administration’s Advocacy Office reports today. Here’s what the drop looks like over the last five quarters:

This represents the volume of outstanding bank loans under $1 million. The government uses that as a proxy for small business lending, because the lending reports banks file with regulators (known as call reports) don’t collect information about the size of the businesses they’re lending to. Banks have reported these numbers every quarter since the start of 2010. Before that, they reported small business lending once a year (in the second quarter).

As the SBA report notes,


Loans outstanding to small businesses continued to decline amid an improving economy. While the rate of decline appeared to slow in the last quarter of 2010, it has turned down slightly in the first quarter of 2011. Remarkably, nominal small business loans outstanding as reported by the Call Reports have declined to levels below those reported in June 2006.

Loans by the largest banks, the roughly 35 institutions with at least $50 billion in assets, accounted for most of the decline, the SBA reports. Mid-size banks with between $10 billion and $50 billion in assets increased loans outstanding by 3 percent, and volumes at smaller lenders remained steady.

These numbers only represent lending by regulated depositary institutions. As banks’ small business loan books continue to shrink, other lenders are stepping into the gap, as Bloomberg reports today:

Lending to small U.S. businesses is making a comeback on Wall Street, with 12 investment firms arranging $1.38 billion of initial stock offerings to funnel cash to the nation’s biggest job creators.
…
Banks, trying to rebuild following $2 trillion of writedowns and losses since the start of 2007, continue to favor government and related bonds to making loans. Holdings of such debt has risen 44 percent to $1.68 trillion since October 2008, while commercial and industrial loans outstanding have fallen 31 percent to $1.26 trillion, Fed data show.

And the drop in small business lending continues even as total business loans are recovering:

While Fed data show commercial and industrial loans are down from the peak in October 2008, they are up 4.7 percent from the post-crisis low of $1.21 trillion in September.

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