California short term business loans are drying up

Interior shot of a Bank of America branch.

Yet another bank whose San Diego business installment loan offerings are microscopic. (Photo Credit: CC BY/MoneyBlogNewz/Flickr)

The San Diego Business Journal reports that the California Reinvestment Coalition has released a new report that fails to paint a rosy picture when it comes to California short term business loans. The report, entitled “Small Business Access to Credit,” points out that total number of small business loans issued in the state fell 63 percent from 2007 to 2009. Among those, the number of traditional bank loans for small businesses in California fell by a third, from 2.3 million in 2007 to 816,000 in 2009.

Short term loans for small business, $1 million or less

Data for the CRC study included filings for short term business loans less than $1 million each, granted to small businesses reporting less than $1 million in revenue. The three largest banks in California – Bank of America, Wells Fargo and Citibank – all showed a marked decline in the number and denomination of short term business loans issued. According to the CRC, this is because underwriting standards became more stringent in the wake of the housing crisis. The flow of credit to small businesses – from San Diego business installment loans to short term loans in any other city in California one can name – has yet to recover fully, although there have been small signs of a resurgence.

Wasn’t TARP supposed to cover that?

The $700 billion-plus U.S. taxpayers gave the banking industry as part of the Troubled Asset Relief Program was supposed to keep the flow of credit from drying up completely, but success for California small business has been minimal. The Small Business Administration claims two in five small businesses are still unable to obtain necessary financing. SBA-backed short term loans to California businesses fell by $1.2 billion over the course of the study.

The vicious demand cycle

Most financial institutions polled claim that small business lending has fallen nationwide due to lessened demand. Some small businesses will fail, thus reducing demand, but the report suggests that what is most likely happening is that banks simply aren’t issuing business installment loans at the same pace as before the recession.

And without credit for small businesses, fewer jobs are being created in California. Couple that with a steady 12.5 percent unemployment rate in California – where even small businesses in San Diego are scratching for installment loans – and the situation is clearly dire.


San Diego Business Journal

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