Wells, BofA Boost Small Business Lending as Tight Credit Limits Job Growth
[Update 1: Adds lending volume increases at Chase and Citi] The big four banks are increasing lending to small- and medium-sized businesses in an effort that could support growth and job creation in the sector. Wells Fargo (WFC) and Bank of America (BAC) increased small business lending 30% and 25% over 2009, respectively. A spokesperson for JP Morgan Chase (JPM) told HousingWire that small business originations, including credit cards, are up 37% in the first half of 2010. A spokesperson for Citigroup (C) said small business lending doubled at the bank over the last six months. The rise in lending comes as small business owners are preparing for an expected tight credit environment, cutting back on spending and hiring, according to a third-quarter 2010 (Q310) survey conducted jointly by Wells Fargo and Gallup. Wells found that, as of Q310, fewer small business owners expected revenue, cash flow, capital spending and hiring to increase at their companies over the next 12 months than the previous quarter. "Slower consumer spending growth appears to be weighing on small business confidence," said Wells senior economist Scott Anderson. "Small businesses are scaling back on hiring and capital spending plans in the third quarter and remain concerned about the overall financial health of their companies." Lower expectations for business prospects contributed to a 17-point decline in the quarterly Wells/Gallup survey to -28 -- the lowest score in the history of the survey. An index score of zero indicates small business owners overall are neutral about market business prospects. The survey found that 38% of respondents expect their companies' revenues to increase "a lot or a little" over the next 12 months, down from 48% in Q210. Additionally, 37% expect capital spending to fall "a lot or a little" over the next 12 months, up from 29% in the previous quarter. Two measures of future expectations reached their lowest points in the 29-quarter history of the survey. Of all respondents, 43% expect their companies' cash flow to increase, down from 53% in the previous quarter. Additionally, 13% expect their companies to add jobs, down from 18% in the previous quarter. Availability of credit seems to have improved modestly over last quarter, with 32% of respondents indicating credit was "somewhat" or "very" difficult to obtain over the past 12 months, down from 36% in April. Business owners expect credit to remain tight over the next year, with 42% anticipating credit to remain "somewhat" or "very" difficult to obtain. Wells and other top banks are boosting lending to small businesses in an effort to support the sector. Small business lending at Wells Fargo grew by nearly one-third in Q310 over the previous quarter, according to Marc Bernstein, executive vice president and head of the Small Business division. "The weakened economy has been particularly hard on small businesses and our bankers are making every effort to help them through this period with financial solutions and guidance," Bernstein said. "We grew small business lending by 30% over the previous quarter and -- in an effort to increase approvals -- took a 'second look' at declined applications, while continuing to apply our disciplined credit and underwriting principles." BofA is also lending more to small- and medium-sized businesses in an ongoing effort to support job creation. The bank loaned $45.4bn to small and medium businesses through the first half of 2010 -- $19.4bn in Q110 and $26bn in Q210. The first-half total is up $9bn or nearly 25%, from the same period in 2009. The company in December 2009 pledged to increase lending to small and medium businesses by $5bn in 2010, from $84.1bn in 2009. "Small and medium-sized businesses are central to the nation's economy and will be a critical part of the recovery -- both as an economic engine for production and growth and as a source of good jobs," said David Darnell, president of Global Commercial Banking at BofA. "In large measure, these businesses have weathered enormously difficult conditions," Darnell added. "During that time, they have very clearly told us that while getting loans is important, what they continue to need most is more demand for their goods and services." Write to Diana Golobay. Disclosure: the author holds no relevant investments.