Small banks more likely to lend

10/12/2011

According to the Biz2Credit Small Business Lending Index for September, loan approvals at small banks increased by nearly 2 percent, while loans from bigger banks dropped for the ninth straight month.

Yet 72 percent of smaller companies still reported declining sales over the first nine months of 2011.

Small businesses need loans to expand and earn profit, but Bloomberg Businessweek explains that disruptive government policies and strict bank loan guidelines have slowed the lending process significantly.

"Regulators have gotten so afraid [of] bad loans that we leave many good loans on the table," an anonymous institutional banker told the news source. "No one ever got fired for not making a good loan."

However, the media outlet notes that targeting small lenders is a small business owners' best bet. Banks with assets greater than $10 billion are approving less than10 percent of small business loan applications because the Dodd-Frank law requires them to keep an abundance of cash reserves at all times. Smaller banks are not affected by the law, making them more apt to take risks and accept a loan request.