Banking is a funny business. When the economy is doing well, it can be pretty easy to get a loan. Conversely, when the economy hits a speed bump, banks don't hesitate to close off the spigot and stop lending, even to the strongest borrowers.
So where does that leave the small business owner in need of a loan today?
Let's start with supply and demand
Every quarter, the Federal Reserve surveys senior bankers from 75 U.S. banks to assess the industry. This survey is a great source of information on current demand for loans and trends in lending standards at U.S. banks.
According to the most recent survey, banks are seeing an increasing demand for small business loans and, at the same time, are easing their lending standards. This combination indicates that banks have money to lend, and that they want to lend it. For the small business owner in need of financing, that's about as good as you could hope for.
Of the banks surveyed, 8.3% reported that lending standards have "eased somewhat." The other 91.7% reported no change in standards. The respondents indicated easing across almost all credit terms from the maximum loan size to easier covenants. However, more so than any other term, banks indicate that small business owners can now, more than ever, negotiate effectively on interest rates.
More than 47% of respondents stated that lending standards have "eased somewhat" when pricing loans higher than the bank's cost of funds. Translated into non-banker speak, that means banks are willing to cut prices to win the deal.
Why are the banks willing to do this? According to survey respondents, it's because of improved economic conditions and competition.
Fifty percent cited improving economic outlooks as either "somewhat important" or "very important" reasons for their easing standards. Even more significant, though, was increased competition, with 97.9% of respondents citing this factor as "somewhat important" or "very important."
According to this survey, the small business owner today should be very excited. Banks large and small want your business, and are willing to give you more favorable terms today than any time in the last 10 years.
Putting money to work
The evidence goes beyond qualitative studies like the Federal Reserve's Senior Loan Officer Opinion Survey. The bank's financial statements put the lending environment into dollars and cents.
According to aggregated data from the FDIC's Quarterly Banking Profile (link opens a PDF), loans to small businesses increased by $8.2 billion from March 31 to June 30. That's the largest quarterly increase observed since this data first began being tracked in 2010.
Community banks led the charge, outpacing the industrywide small business loan growth rate by more than 70%. Community banks increased their small business loan balances by $5 billion in the second quarter of 2014, to $298 billion. That's a 3%, or $9 billion, increase year over year.
That growth wasn't concentrated at a select few institutions either; nearly 62% of community banks across the country increased their small business loan portfolios.
The best time since before the financial crisis
So how hard is it to get a small business loan today? The evidence indicates that it's easier than it's been in quite some time, at least going back to the financial crisis in 2008 and 2009.
This is not to say that every single loan application will be approved, but it does show that the struggle to find capital to fund small businesses is easing. Whether a small business needs a new facility, new equipment, or working capital, now is a good time to seek out banks for financing.
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