Ten years after the start of the Great Recession, bank lending to small businesses remains depressed, according to a new study by faculty at Florida Atlantic University (FAU) College of Business.
It found that small-business lending has grown at about 2 percent per year since 2008, about half the rate of total business lending.
“There’s been a very small recovery in lending to small businesses,” Rebel Cole, a professor in finance at FAU and the lead author of the study, said. “The repercussions of this are huge. Small businesses account for about half of all private sector employment.”
The drop in small-business loan originations has been more precipitous at large banks compared to small banks. Large banks severely curtailed their small-business lending after the financial crisis, focusing mostly on large businesses. Further, troubled banks have lent less to small businesses than healthy banks.
To encourage more small-business lending through large banks, Cole said regulators could use existing laws, such as the Community Reinvestment Act. Lawmakers could also pass legislation to limit the concentration of banking sector assets in the hands of a few large players. In addition, the evidence supports proposals by U.S. banking regulators to raise minimum capital ratios to levels where they are binding constraints for large banks.
The study was published by the U.S. Small Business Administration.