Small Business Borrowing Down

Early last month, the SBA Office of Advocacy released its latest “Quarterly Lending Bulletin.” The numbers on small business borrowing were, to be generous, less than encouraging.

Consider the following key points from this Advocacy brief:

• “Total small business loans outstanding dropped 2.4 percent from $624.3 billion in December 2010 to $609.4 billion in March 2011. Micro business loans outstanding (under $100,000) were down by 2.9 percent, while macro business loans outstanding ($100,000–$1 million) declined by 2.2 percent.”

• “Small business loans outstanding by the largest lenders (assets of $50 billion or more) declined the most, by 4.9 percent.”

• “Loans outstanding from lenders in the $1 billion–$9 billion asset category remained constant. Lenders with $10 billion to $49 billion in assets had a modest increase of 3.1 percent in loans outstanding.”

• “Remarkably, nominal small business loans outstanding as reported by the Call Reports have declined to levels below those reported in June 2006.”

Particularly given the Fed’s unprecedented loose monetary policies for the past 34 months, even with the imposition of misguided financial regulations, this is overwhelmingly about a lack of demand for loans among small businesses.

This unwillingness of many small business owners to borrow reflects uncertainty about costs and where the economy is headed. And most of those concerns tie back to unprecedented changes in government policies over the past three-plus years.

As noted in SBE Council’s “Entrepreneurs and the Economy Survey: Small Business Trends, Issues and Outlook” conducted by Technometrica and released at the end of last month, 76 percent of small business owners are not satisfied with current federal economic policies – with 51 percent “not at all satisfied” and 25 percent “not very satisfied” – while 20 percent are “somewhat satisfied” and only 3 percent “very satisfied.”

Small businesses are central to economic recovery and growth. The length of this past recession and the poor subsequent recovery are largely about entrepreneurs staying on the sidelines, unwilling to expand, invest and borrow. They see a massive expansion of activist government not as an aid, but as a serious threat.

If the U.S. economy is to get back on a path of robust, consistent growth, then government will need to be vastly reined in when it comes to spending, taxes, regulation and loose monetary policy. That would translate into enhanced confidence among small businesses. Short of such a change in policymaking, the economy will continue to under-perform, despite the resilience and courage of the American entrepreneur.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.