Banks Optimistic on Small Business Lending

Small business lending is expected to increase according to the most recent survey of bank risk professionals published by the Fair Isaac Corporation (FICO).

Bankers expressed widespread optimism about the small business lending sector, voting by more than a two-to-one margin that the approval rate for small business loans and the total amount of credit extended to small businesses would increase rather than decrease. More than half of all respondents predicted that the overall supply of small business credit would meet demand, although this could simply be a symptom of weak demand rather than a boost in available credit.

Notably, survey respondents were less positive about small businesses' requests for credit. In the first-quarter survey, a large majority of 61.9% of respondents predicted an increase in the amount of credit requested by small business. This figure increased to 69.1% in the second-quarter survey, but fell hard to 56.5% in this quarter's survey. This is still a positive trend, with a majority of participants expecting increased requests for credit, increased approval rates and increased credit in general, but it's not as positive as many had hoped.

Still, the third-quarter survey, conducted for FICO by the Professional Risk Managers' International Association (PRMIA), didn't leave the banking industry wanting for reasons to be anxious. Concerns in the student loan market were rampant in the survey, with a 61% majority of respondents expecting delinquencies on student loans to increase over the next six months. This marks the fourth consecutive quarter that respondents have predicted a worsening of student loan delinquencies.

Commercial credit risk managers might not have to worry about the threat of student loan defaults, unless they're their own, but the adverse effects on the economy at large from these delinquencies could be potent.

- Jacob Barron, CICP, NACM staff writer

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