American manufacturers are saying that business is booming, but many of them also say that banks aren’t keen to provide the loans necessary to hire more workers, buy new equipment, and ramp up production. According to Biz2credit, a New York firm that matches borrowers with lenders, a recent analysis found that loan approvals at large banks (those with $10 billion plus in assets) fell in April for the second straight month.
Banks are saying that they’re willing to lend but also admit that they are proceeding with caution, especially with loans to smaller, or contract manufacturers. Recent articles note that “the slow pace of the economic recovery is causing both borrowers and lenders to proceed with caution” and “ the slowdown in small-business lending is due to the March expiration of a temporary 90% guarantee on SBA loans and the reinstatement SBA loan fees that had been temporarily waived to stimulate lending.”
However, I would like to suggest that the continued tightness in business lending may be a reflection of banking strategies employed by different sized banks. Big national banks are much more likely to have been affected by the mortgage backed security mess and the subsequent increase in bank oversight and regulation has encouraged them to reduce risk and tighten lending. Smaller banks, meanwhile, which have traditionally made their living off of smaller loans that they carry on their own balance sheets, seem to have increased their small business lending.