By Angus Loten
Some of the nation’s biggest banks on Tuesday pledged to boost lending to small firms by an extra $20 billion over the next three years.
- Getty Images
The move, announced by Vice President Joe Biden at a small business in Solon, Ohio, comes as loans guaranteed by the Small Business Administration hit record highs.
As of last week, the agency has approved more than $18 billion in lending under its 7(a) and Arc loan programs this fiscal year, up from $12.4 billion in 2010 and $8.6 billion in 2009, agency lending data show.
Earlier this month, Wells Fargo became the first lender to issue more than $1 billion in SBA loans in a single year. The next top nine lenders combined have issued some $3.5 billion.
Meanwhile, conventional lending to small businesses by large banks continues to tighten. A recent analysis of 1,000 loan applications by Biz2Credit, a New York small-business loan broker, found approval rates by large banks dropped to 9.35% in August, down from 9.8% in July. By contrast, approvals by smaller banks were above 40% in August, though also down from July.
At the same time, credit demand from small firms remains low, as owners grapple with weak sales and an uncertain outlook, recent surveys show.
Though issued by banks and other lenders, SBA loans are guaranteed against default by the federal government. Loan brokers say that gives lenders extra breathing room in a shaky economy with riskier lending conditions.
Biden said the SBA’s lending programs help small businesses by “making sure they get the loans they need to grow and hire more workers.” He also urged Congress to pass the American Jobs Act, which was unveiled last week by President Barack Obama and contains tax cuts and other incentives for small employers.
Last October, the SBA raised maximum loan limits under its flagship 7(a) program to $5 million from $2 million. Some lending brokers say the higher limits have attracted larger borrowers, leading to fewer loans but with higher dollar values, while edging out smaller firms.
Clarification: An earlier version of this story misstated that lenders committed only to increasing government-backed small-business lending. The commitment was to increase all small-business lending.
