SBA involves credit unions for small biz lending

The financial services market has progressed by leaps and bounds in terms of innovation, from the rise of alternative finance to the development of technologies like blockchain and open banking initiatives. The global financial crisis in 2008 was, in many ways, a catalyst to this innovation, especially in the area of small business (SMB) finance, as banks pulled their services away from SMBs and FinTechs stepped in to offer another option.

Now, a decade on, small business optimism is up in the U.S., despite a flurry of concerns over regulations, economic development and more.

About a third of SMBs recently told Capital One they’re currently in a better financial position than they were a year ago, for instance. Meanwhile, 71 percent of SMBs told Wells Fargo and Gallup that their financial situation is at least somewhat good.

But a new report from the U.S. Small Business Administration (SBA) may call into question whether the rebound in SMB optimism is linked to a rebound in access to finance. In fact, according to the SBA’s latest report, corporate finance has largely bounced back in the nation — but small businesses aren’t seeing much of that recovery.

“There’s been a big rebound in lending to big businesses, but there’s been a very small recovery in lending to small businesses,” said Rebel Cole, Ph.D., author of the report and Florida Atlantic University’s Kaye Family Endowed Professor in Finance. “The repercussions of this are huge. Small businesses account for about half of all private sector employment, about half of all net job growth and about half of gross domestic product.”

“If small businesses can’t get credit, they can’t grow,” he continued. “They can’t hire people; they can’t invest in new plant equipment, so the economy can’t grow. That’s one big reason we’ve had such an anemic recovery since the financial crisis, is the small business sector has been constrained.”

In its report, the SBA outlines several recommendations for policymakers to encourage an expansion of small business lending among the traditional financial services industry. They include the creation of new community banks, the reduction of regulatory constraints on small banks and the support of traditional non-banks.