Small Business Lending: Which Way Is The Wind Blowing?

by Ken Paterson 0

NPR listeners may have recently heard a reporton the frequent use of Bob Dylan lyrics in legal rulings, with thetop spot going to “You don’t need a weatherman to know which waythe wind blows.” Alas this lyric does not apply to our ability totrack small business credit; not only is there no weatherman-wecan’t even open the windows to feel if the air is moving.

Case in point: the small business administration recently releasedan update of lending to small business for Q1/2010, and noted thatlending fell $15 billion quarter to quarter. The metric used wasloans under $1 million, as noted in bank call reports. Consideringthe vast majority of small businesses have under $2 million inannual sales, this is a rather misplaced indicator. Even when themetric of commercial and industrial loans under $100,000 is used asa yardstick, this misses a majority of small businesses. Only aboutone in three small businesses have a business loan, and perhaps sixin 10 have either a loan or credit line. But over eight in 10 use acredit card for their business, either a business or personalvariety. Without a valid and current measure for the single mostused business lending product (credit cards), it is nearlyimpossible to gauge borrowing activity by small business.

Without a more complete and inclusive measure of borrowing, we haveonly the broadest indicators of small business lending at ourdisposal. And like most important things, there would be costs tocollecting the data, either for lenders to provide new reports, orfor governments to conduct frequent and robust business sampling.But without the proverbial weatherman, we really don’t know whichway the wind blows for lending to the segment most critical to oureconomic recovery.