Hot Topic Tuesday- SBA Lending Drops After PPP Loan Program Ends

July 6, 2021
By Delaney Sexton
Contributing Editor

Hot Topic Tuesday- SBA Lending Drops After PPP Loan Program Ends

“The COVID-19 pandemic was an economic shock to small firms and the effects were not easily predictable,” reads the SBA Office of Advocacy’s May Economic Bulletin. “Financial conditions have improved and remain accommodative to economic growth. Meanwhile, financing remains reasonably tight for small businesses with subpar credit scores.”

Here are the key points regarding small business lending:

• The noncorporate business sector (made up of small businesses) saw less success with borrowing methods in 2020 compared to the corporate sector. The corporate sector was able to effectively use various borrowing methods and saw a slight increase in borrowing at the end of the year.
• Bank lending standards for small businesses still remained tight in 2020, but the standards lowered substantially towards the end of 2020.
• The demand for loans continued to be relatively low, but banks did see an increase in demand in 2020.
• The commercial real estate loan market saw little to no change in small business loan shares (loans $1 million or less).
• Commercial and industrial loans had an increase in small business loan shares in 2020. The fourth quarter of 2020 saw outstanding commercial and industrial loans grow 50% when compared to the fourth quarter of 2019.
• In the second half of 2020, the small business lending index recovered after seeing a period of relatively low activity in the first half of 2020. PPP lending helped drive this increase in lending.
• At the very end of 2020, small business lending slowed down. This is likely related to PPP lending also slowing down during this period of 2020.
• Small business loan defaults started rising in mid-2020. Although they increased, it started to level out and begin decreasing towards the end of the year. The loan default levels are still much lower than the level of loan defaults seen during the Great Recession.

Source: SBA Office of Advocacy May Economic Bulletin