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Small Business Lending Declines Again, But Upswing Foreseen

Financial institutions persist on tightening their reins on lending to small firms, but the U.S Small Business Administration (SBA) remains optimistic about a potential upswing in borrowing as the economy improves.

The value of loans for small businesses declined 6.2 percent from June 2009 to June 2010, a new study from the SBA’s Office of Advocacy found. Loans for large firms dropped 8.9 percent over the same period.

“Businesses and lenders continued to exercise caution in borrowing and lending through 2009 to 2010,” said Winslow Sargeant, the SBA’s chief counsel for advocacy. “As the economy improves, this study, through its state-by-state display of lender performance, can help both small business borrowers and lending institutions see where small firms are beginning to find the capital they need.”

The study also shows that loans under $100,000 began to stabilize. These loans are down 1 percent compared with the 5.5 percent drop through 2008 and 2009. Real estate loans mostly accounted for the decline.

In the past, lending increased after recessions when gross domestic product (GDP) improved. GDP increased at an annual rate of 3.2 percent in the fourth quarter of 2010, according to advance estimates from the Bureau of Economic Analysis. GDP also rose 2.6 percent in the third quarter. These recovery signals may bode well for lenders, the SBA believes.

Researchers tracked data reported by financial institutions to their regulatory agencies to complete the study titled “Small Business Lending in the United States.”

Reach BusinessNewsDaily staff writer Brian Anthony Hernandez at Bhernandez@TechMediaNetwork.com. Follow him on Twitter: @BAHjournalist.