Research on Banking and Financing, including Credit, Debt, and Micro Lending
Small businesses borrow for four principal reasons: starting a business, purchasing inventory, expanding, and strengthening the firm’s financials.
“Small business owners across the country tell me that access to capital remains one of their central concerns,” said Chief Counsel for Advocacy Winslow Sargeant. “The research we are releasing today will add to the understanding of small business financing needs and sources, and will inform policymakers seeking to strengthen the productive small business sector.”
The Finance FAQ is replete with data about where small businesses obtain their financing, including 15 graphs showing types of startup and expansion financing, as well as trends in bank lending, interest rates, venture capital, initial public offerings, SBIC funding, and SBA loans.
Advocacy also released two studies on the availability of credit from banks and credit unions:
Bank Liquidity Pressures and the Availability of Bank Credit to Small Firms: Was the 2007-2009 Credit Crisis Different?, authored by Joe Peek, finds that the liquidity of bank assets became an important factor in the financial crisis, as healthier banks tended to shy away from small commercial and industrial loans and small commercial real estate loans.
The study found that during the financial crisis, bank holdings of liquid assets became an important factor for bank lending; generally, this sensitivity persisted during the immediate post-crisis period. The evidence also suggests that healthier banks tended to shy away from small commercial and industrial (C&I) and small commercial real estate (CRE) loans. Read the Full Report | Read the Research Summary
The Growing Impact of Credit Unions on Small Business Lending, authored by James Wilcox, looks at annual state-level data and national aggregate data for banks and credit unions from 1986 to 2010 and finds that, even during the financial crisis, credit unions may have provided some extra business lending in response to reductions in business lending by banks.
The results suggest that, even during the financial crisis, credit unions may have provided some extra business lending in response to the reductions in bank business lending. While credit unions partly offset changes in business lending by banks, the findings also show that these effects have not been consistent over time. To the extent that increased credit union supply of business credit has and will offset reductions in bank loan supply, credit unions can help small businesses and reduce the cyclicality of their local economies. Read the Full Report | Read the Research Summary