Despite Stricter Standards, Small Business Lending Climbs

The Thomson Reuters/PayNet Small Business Lending Index determined that year-over-year lending to small businesses increased last month.

Although the month-to-month figure is down marginally, it’s the year-over-year figure—109.7, up 16 percent—that has analysts encouraged. The numbers are by no means spiking, but it’s the slow consistent growth of the three-month rolling average that is notable.

“We’re back to consistent growth,” PayNet founder Bill Phelan told Reuters. “Boring is beautiful here.”

Through the recovery, another reliable ally for small businesses has been the Small Business Administration (SBA). With lenders (rightfully) applying more stringent levels of scrutiny when assessing whether borrowers are creditworthy, the SBA has become more valuable. The SBA is able to offset some of the risk a lender takes on when it extends a loan to a business.

The Washington Post profiled some of the businesses who have recently benefited from SBA funding.

“A lot of banks wouldn’t even take a look at the loan,” said Virginia hotel owner Everett Lovell, who was able to secure a $6.2 million loan funded in part by the SBA. “Some said they had bad luck with hotels, others said they just weren’t interested in small-business loans right now.”

The SBA has provided a record number of loans under the Obama administration, with the total in the last 12 months approaching $30 billion—the level seen each year for the last three.

While some lenders may temper their risk with an SBA partnership, every lender will benefit from making proven risk management software a part of their process for extending credit to borrowers.