The national banks that survived thefinancial crisis did not escape without damaging their reputation.Media reports and public opinion often criticize these institutionsfor putting the financial system at risk. From this perspective,it’s tempting to blame overly tight lending standards for the weakrecovery in small business lending. But what is really keepingbusiness lending down? I believe restricted accesses to credit anddepressed appetite for debt are both at play. Neither banks’ norbusinesses’ conservatism tells the whole story.
U.S. banks have generally tightened lending standards and reducedexisting credit lines on many business credit card accounts sincethe recession. But businesses’ appetite for credit is also quitesubdued. Many businesses owners expect growth in revenue and netincome to be very challenging; some even think the U.S. is still ina recession. It is not surprising then, that many businesses arerefraining from expanding production, hiring new employees, orraising capital.
Issuers of small business credit cards, a very important source ofcapital for these businesses, are doing fairly well. Spending onthese products continues to grow despite business owners’ aversionto debt. This is similar to the way today’s consumers are usingtheir credit cards. Issuers are likely encouraged that purchasevolumes on both products are growing, although account formationand outstandings aren’t budging. There is plenty of opportunity forall metrics to improve, driven by shifting preferences in favor ofelectronic payments and issuers continued development ofapplications to support their card products – not to mention thebillions of dollars in business purchases that are charged toconsumer credit products.
Mercator Advisory Group’s December 2013 report titled Business Credit Cards: Whetting Business Owners’Appetite for Borrowing details the variety of factors atplay in the small business lending environment, and reviewsbusiness card product development among several major U.S.issuers.