Wells Fargo (NYSE:WFC)
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Although some bankers have recently said they see small-business lending as an economic bright spot, a survey of small businesses issued Wednesday came to a different conclusion: Small-business owners so far have little interest in taking out new loans.
"Even as demand for credit begins to rise and as companies again start to expand... the environment for small business (is) likely becoming worse before it becomes better," said the National Federation of Independent Business, a trade group representing small-business owners. Its report was based on a survey of 856 small-businesses employing one to 250 people.
Small businesses are often considered a key generator of jobs--an important consideration at a time when unemployment hovers near 10%. Moreover, for banks, small-business lending offers a chance to repair their reputation that was damaged by the perception that they played a key role in contributing to the financial crisis, as growth in lending would help the economic recovery. Boosting small-business lending would also offer banks a chance to generate scarce revenue growth.
Though most small businesses use credit of some kind, more than half said they didn't need any new loans last year, according to the survey. Of those who applied for loans, 41% got what they needed, 16% didn't get any credit, while the rest obtained some. A small number of busineses rejected the credit they were approved for because they didn't agree with the terms.
The survey also found that business owners who use credit cards as the only source of borrowing do so by choice rather than because they didn't get a bank loan.
"The economic atmosphere for small businesses did not improve much in 2010," said Denny Dennis, NFIB Research Foundation senior fellow, in a press release. "We don't expect credit levels to reach the levels they did a decade ago."
Bankers have sounded a different note. "Sales [of small-business products] were strong" in the fourth quarter, Howard Atkins, Wells Fargo & Co.'s (WFC) chief financial officer, told investors last month. The bank, the U.S.'s second largest by deposits after Bank of America Corp. (BAC), said small-business loans rose 18% in the fourth quarter from a year earlier.
Richard Davis, chief executive of U.S. Bancorp (USB), told investors last month that the Minneapolis bank, the sixth largest by deposits, doubled its small-business-loan officers over the last 18 months as small businesses grew.
While demand for business loans in the fourth quarter picked up broadly late last year, small-business lending was one of the few portfolios where bankers saw growth even in the third quarter.
The NFIB survey collected data until October.
Wells Fargo said in December that its latest small-business index survey showed increasing optimism among small-business people. The improvement "appears to be more than statistical noise," Wells Fargo senior economist Scott Anderson said.
Nevertheless, NFIB's Dennis said the degree of decline in loan demand last year was surprising. It's unclear whether there is a disconnect between bankers' expectations about small-business lending and the actual demand for credit, or whether some banks are trying harder to lure small-business owners. "Clearly there are firms that have made this a priority--banks of all sizes," Dennis said in an interview. Others banks are still struggling to recover from their exuberant lending before the crisis.
J.P. Morgan Chase & Co. (JPM) has made an effort to expand small-business lending. It has hired 500 small-business bankers since November 2009, expanded in new markets, gave rejected loans a second look and exceeded its goal to make $10 billion in new small-business loans last year.
Huntington Bancshares Inc. (HBAN) CEO Stephen Steinour said in February his bank would double small-business lending over the next three years, in part by easing underwriting standards.
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; firstname.lastname@example.org