Small business lending has declined substantially since the Great Recession for multiple reasons, according to newly published research by Federal Reserve Bank of Cleveland policy analyst Ann Marie Wiersch and visiting scholar Scott Shane, professor of entrepreneurial studies at Case Western Reserve University.
The researchers found:
• Fewer small businesses are interested in borrowing because of soft demand for their products and services.
• Small business financials have remained weak, depressing loan approval rates.
• Declining real estate prices have lowered collateral values, limiting borrowing amounts.
• Increased regulatory scrutiny has caused banks to tighten lending standards.
• Consolidation has reduced the number of small banks, which are more likely to lend to small businesses.
• Small business lending has become relatively less profitable than other types of lending.
Wiersch and Shane say these events make it unlikely that small business credit will increase anytime soon.
An overview of the study is available online at the Cleveland Fed website, www.clevelandfed.org.