A new Small Business Administration study supports the contention by many community banks ”“ the larger ones anyway ”“ that their lending has been leading the local economy out of the recession.
Among New York-area banks with assets between $100 million and $500 million, small-business lending was up 8 percent between 2009 and 2010 according to the SBA, the only bank class to increase its loan capital to small businesses during that time period. By contrast, small-business loans issued by the largest banks ”“ those with assets of at least $1 billion ”“ fell 5 percent, despite ballyhooed marketing programs by some like JPMorgan Chase & Co. Chase unveiled a program last year that pegged interest rates in one loan program to new hires made by companies.
Drilling into annual regional banking data between 2003 and 2010 published by the Federal Deposit Insurance Corp., the SBA examined small-business lending in the context of an economy that has endured a deep recession and appears poised for recovery. The study includes both commercial real estate loans and commercial and industrial loans; it does not include credit-card loans that are sometimes included in other small-business banking studies.
Under the SBA national study, New York and New Jersey form one region (along with Puerto Rico) and New England another, including Fairfield County which the Federal Reserve lumps in with New York in its own banking analyses, given the commuter and business ties between the county and New York.
The SBA focused on changes in five performance categories: aggregate lending, number of loans, average loan size, ratio of small-business loans to total assets, and ratio of small-business loans to total business loans.
Data was also split between banks with varying total assets, providing a glimpse of how big banks approached small-business lending compared to their smaller competitors.
Overall, the number of small-business loans issued in New York and New Jersey plunged between 2009 and 2020, according to the SBA, by 15.4 percent between 2009 and 2010 alone.
That was in marked contrast to the trends in New England, where the number of small-business loans increased slightly over the same period. In both regions, lending as measured by dollars was down 1.1 percent ”“ a signal that in the New York region banks were issuing larger loans to a smaller base of borrowers.
With businesses facing rapidly escalating prices on energy, food and other commodities, the question becomes whether loan demand will continue to strengthen among small businesses facing new pressures to the bottom line. Of course, another question is whether banks will step up for those seeking loans even as they warily eye the June implementation of the Dodd-Frank financial reforms that promise to significantly increase their own costs.
“A sharp rebound in economic activity ”“ like those that often follow deep recessions ”“ does not appear to be in the offing,” said Janet Yellen, vice chairwoman for the Federal Reserve Bank of New York, speaking last week to a gathering of the Economic Club of New York. “One key factor restraining the pace of recovery is the construction sector, which continues to be hampered by a considerable overhang of vacant homes and commercial properties and remains in the doldrums ”¦ While the labor market has recently shown some signs of life, job opportunities are still relatively scarce.”
