It's taken over three years, but loan approvals for small businesses are back to pre-crisis levels.
Credit conditions for small businesses are starting to return to normal for the first time since the start of the global financial crisis, according to Greenwich Associates.
As part of its continuing analysis of more than 500 companies with annual sales of between $1 million and $10 million, Greenwich found that 59% of small businesses have applied for loans over the past 12 months.
Of those that applied, 57% were approved, bringing the lending levels back to where they were before the credit crunch, according to Greenwich consultant Marc Harrison.
“Now that we see a more normalized picture, it's pretty much a good news story, except for those small businesses that weren't able to make it, because of the lack of credit leading up to this point,” he said.
In terms of the broader economic significance, Mr. Harrison explained that increased access to credit, which is crucial to most small companies, is expected to lead to increased hiring, expansion and capital expenditures.
The alternative to business loans for a lot of small-business owners included a reliance on personal credit cards, savings and home equity loans.
“A lot of business owners have had to leverage their personal financial situation,” Mr. Harrison said.
The driving force behind the increased access to credit was a combination of factors that saw regional and community banks first stepping up to fill the void created when larger banks pulled back.
Then, as the larger banks started to payback loans from the Troubled Asset Relief Program, which relaxed their reserve requirements, the big banks also launched more-attractive lending options to smaller companies.
“Over the past six months, the credit policies at the larger banks have become looser because they realize they need to be more aggressive,” Mr. Harrison said.
In terms of how the new capital is likely to trickle down through the broader economy, 55% of small-business borrowers plan to allocate resources toward some form of employee compensation.
The money will be used to increase or reinstate normalized levels capital expenditures by 39% of businesses, and 36% plan to hire new employees.
The response to better access to credit parallels the actions of business owners at the height of the credit crisis.
According to the Greenwich research, in 2008 and 2009, 69% of small-business owners surveyed reduced or eliminated capital expenditures.
Salary freezes were imposed by 57% of businesses, and other general compensation was reduced by 54%, while 47% resorted to laying off workers.
