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Why Small Business Lending Isn’t What It Used To Be…

Economic Commentary

Why Small Business Lending Isn’t What It Used to Be Ann Marie Wiersch and Scott Shane Since the Great Recession, bank lending to small businesses has fallen significantly, and policymakers have become concerned that these businesses are not getting the credit they need.

Many reasons have been suggested for the decline. Our analysis shows that it has multiple sources, which means that trying to address any single factor may be ineffective or make matters worse. Any intervention should take all of the many causes of the decline in small business lending into consideration.

Small business lending has dropped substantially since the Great Recession. While some measures of small business lending are now above their lowest levels since the economic downturn began, they remain far below their levels before it. For example, in the fourth quarter of 2012, the value of commercial and industrial loans of less than $1 million—a common proxy for small business loans—was 78.4 percent of its second-quarter 2007 level, when measured in inflation-adjusted terms.

And despite an increase of nearly 100,000 small businesses over the period, the number of these loans dropped by 344,000 over the 2007 to 2012 period (many such loans arguably go to small businesses).

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