23 Ventures Commercial Lending Blog

By Angus Loten, WSJ

Commercial and industrial loans have grown by $61 billion since the start of the year, or 6.2% above the same period a year ago, the Federal Reserve reported Monday.

Yet the upturn has largely bypassed small firms.
Instead, the bulk of the gains were made by loans to midsize companies, which were borrowing cash to upgrade or repair aging equipment, according to bankers cited by the Wall Street Journal. The Fed’s gauge of commercial and industrial lending excludes business real-estate loans.

While any new investing by small or midsize employers is welcome news – most businesses have put off upgrades since the onset of the recession, lenders say – few businesses appear to be committing cash to the type of expansion that would lead to more jobs.

Last week, the National Federation of Independent Business reported that capital outlays by small businesses inched up in August, though remained at recessionary levels. Most small-business owners don’t expect spending on new equipment or workers to raise earnings enough to “repay the loan required to finance the investment,” the Washington lobby group said.

Of more than 900 small-business owners surveyed in August, 93% said their credit needs were either met or they weren’t interested in borrowing, the NFIB said.

Meanwhile, productivity gains made amid cost cuts and layoffs in recent years have many midsize employers seeking capital for strategic spending, such as mergers and acquisitions, rather than staffing up, lenders say.