Rebel A. Cole, November 2012
Introduction
Small businesses are a source of economic strength to the nation; they provide economic opportunities to diverse groups of people and bring innovative products and services to the marketplace. As an economic engine, they typically create new jobs, but since the housing bubble burst during 2007-2008 they have struggled to maintain their foothold. Their success depends upon their access to credit, and they rely heavily on depository institutions for their financial needs. Lax underwriting standards saddled U.S. banks, large and small, with levels of nonperforming loans not seen since the banking crisis of the late 1980s. Anecdotal evidence suggested that small businesses, which largely rely upon banks for credit, were especially hard hit. The purpose of this study is to understand how bank credit, in general, and bank credit to small businesses, in particular, were affected by the financial crisis. This study is part of an evolving discussion among researchers and policymakers. It is one perspective on the issue, and others may have additional views and findings.
Overall Findings
The report shows that the decline in bank lending was far more severe for small businesses than for larger firms. Bank lending to small firms rose from $308 billion in June 1994 to a peak of $659 billion in June 2008 but then declined by almost 18 percent to only $543 billion in June 2011. Bank lending to all firms rose from $758 billion in 1994 to a peak of $2.14 trillion in June 2008 and then declined by about 9 percent to $1.96 trillion as of June 2011.