Is it a lack of supply (of small business loans) or a lack of demand?
In a recent article, The Economist magazine opines that although lack of access to credit inflicted huge damage on small
businesses last autumn, lending (or lack of it) has not been the main
problem for most of 2009. Rather, it was the weak economy that
devastated profits and loan demand (see chart).
I keep reading in the press that banks have not tightened their underwriting standards for C&I loans. But most of the lenders in my training on ‘Tax Return Analysis in a Tough Lending Environment’ tell me it definitely is harder to get a loan approved.
According to the SBA, senior loan officers reported a tightening of small business lending standards from 2006 through late 2008. It has been easing but as you can see, during that same time the demand for small business loans was dropping. ,
Even if the standards were the same, the economic downturn has caused enough damage that small businesses who would have qualified in 2007 may not in 2009…and perhaps will not until 2011 because of the industry practice (understandably so) of using recent historical performance to predict future performance.
The Improving Economy will drive Loan Demand
…at least of the loans you want to make; to strong businesses with adequate revenues, profits and capital.