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Small business lending shows more activity, less capital extended

Jul 23, 2013 Walt Wojciechowski

Small business lending shows more activity, less capital extended

Small business lending activity has been a mixed bag this year, as companies across the country adapt their financial practices. Most likely a result of careful fiduciary policies that have been adapted in the wake of the Great Recession, businesses and lenders appear to be taking a much more conservative approach to extending and accepting debts.

A recent report from the Small Business Administration found that the number of small enterprise loans given out in 2012 spiked by 10.4 percent compared to 2011. Despite the increase in lending, the actual monetary amount of the offerings declined. Overall, the value of lending products provided to small firms dropped by $19 billion in 2012.

Although the decrease in value may be worrying for some, the rate of decline has been easing. In 2011, the SBA recorded a 6.9 percent drop in lending from the previous year, steeper than the 3.1 percent decline marked for 2012.

Instead of extending large loans, banks, short term lenders and other financial institutions are starting to prefer smaller, more manageable loan services. Michael Carrazza, a banking expert, explained to the Wall Street Journal that that it's a more sensible model for financial enterprises.

"A careful bank would rather have 100 loans for $1 million than 10 loans for $10 million, because if one (small) loan goes bad, it doesn't impact the portfolio," Carrazza told the source.

The transition to these lending practices has been a welcome development for many. Small business owners want to find more stable ways of obtaining credit, while lenders want to provide low-risk solutions to consumers and businesses. Perhaps if the economy continues to rebound at it's current rate, the coming years may provide an environment that is ripe for more extensive lending.