How Did Bank Lending to Small Business in the United States Fare After the Financial Crisis?

Abstract

Aggregate bank-loan data reported by the FDIC show that bank lending to small businesses plummeted during 2009-2011 following the collapse of Lehman Brothers in Sep. 2008 and the onset of the financial crisis, and continued to decline during the post-crisis years 2012-2015. However, the number of banks also declined during both periods, making it difficult to determine if banks have continued, or loosened, the tight-credit policies of 2009-2011. The current study analyzes bank-level data on both the stock and flow of small-business lending collected by U.S. banking regulators to provide new univariate and multivariate evidence on whether bank lending to businesses - small and large - recovered after the financial crisis. The analysis reveals that bank lending to small businesses remained at depressed levels throughout the post-crisis years, while total-business lending saw somewhat of a recovery. Finally, the analysis documents that the declines in small-business lending were significantly greater at large banks than at small banks, and at banks in worse financial condition than at banks in better financial condition.

Keywords: availability of credit, bank credit, bank lending, business lending, business subsidies, credit crunch, entrepreneurship, financial crisis, small business, small business lending, troubled bank

JEL Classification: G01, G21, G28, G32, H25, H8