Wall Street Journal staffer Ruth Simon reports that the biggest banks in the U.S. are making far fewer loans to small businesses than they did a decade ago, ceding market share to alternative lenders that charge significantly higher rates.
The analysis here explores the reasons overall bank lending to smaller businesses is down since the Great Recession--among them, that loans to small businesses can be almost as complex, and are much less profitable than loans to larger corporations. Moreover, demand among small biz for loans took a big hit during the downturn and is now much more heavily regulated under Dodd Frank rules. Also, banks can practically force smaller companies to use credit card debt for operational finance, a more expensive way to borrow for a firm, and easier to manage for a bank. Simon writes:
At some big banks, the credit card has become the default loan source for small businesses. Rates on cards issued to small businesses average 12.85%, according to Creditcards.com.