Small Businesses Face Credit Hurdles As Lending Dwindles
December 28, 2020
Small businesses that have managed to navigate the coronavirus crisis are now facing another challenge in the difficulty of finding loans. As part of the initial stimulus package, the Paycheck Protection Program funneled more than half a trillion dollars in forgivable loans to small businesses, but aside from that, small businesses have faced a decade-long decline in lending.
According to a Wall Street Journal report, in 2007, banks held $721 billion in small business loans and small commercial mortgages. By 2019, loan balances had decreased by about 6%, falling to $680 billion. Over the same period, loans to bigger businesses had more than doubled to $2.82 trillion.
The Wall Street Journal attributes the credit drought facing small businesses to the disappearance of community banks in recent years. Smaller loans are also less profitable for banks, as it costs about the same for a bank to process a $100,000 loan and a $1 million one.
The lack of credit could have implications for the labor market, as businesses that do survive the pandemic may be unable to rehire staff unless they can secure funding to cover payroll.