Friday, March 4, 2011

Bank loans to small businesses are rising

Commercial and Industrial Loans are a good measure of bank lending to small and medium-sized businesses, the ones that don't have easy access to the huge corporate bond market. After two years of a severe contraction, in which C&I loans shrunk by 25% ($400 billion), a rebound is finally underway. Over the past three months, loans have risen at a 6.1% annualized pace, after zero growth for most of the second half of last year. It's still small potatoes in the great scheme of things, but it nevertheless marks an important inflection point. Instead of shunning new lending, banks are now expanding their balance sheets; instead of deleveraging, businesses are now in the mood to borrow.

It should be clear from this chart that recoveries are not dependent on an increase in bank lending. Indeed, most recoveries in their initial stages are characterized by deleveraging, as companies shore up their balance sheets in preparation for renewed growth. So the message of the recent increase in C&I loans is not that the recovery is finally getting underway, it's that business balance sheets are healthier, business excecutives are more confident in the future, and banks are once again in the mood to lend. All of this will help sustain the recovery in the years to come.


Bill said...

Please tell me which banks are loaning to businesses because I cant find one. It has been my experience that banks are just loan servicers these days rather than lenders. In my experience, they will not even extend credit lines which have been faithfully and timely paid.

Benjamin Cole said...

"All of this will help sustain the recovery in the years to come."

From your lips to God's ears.

Most small businesses can only borrow against collateral, that being property.

All the more reason why we need a real estate recovery. That will give banks something to lend against.

Lori said...


Just the opposite of what the set up was two to three years ago, that perfect storm that broke in the past, we are currently in place for the perfect wave.

The only thing we are really lacking is the slathering on of a thick layer of surf wax by the friends with the negative demeanor.

What are you currently buying these days?

Benjamin Cole said...


Actually, for personal reasons, I have been buying Thai farmland for the last several years. It has appreciated, but then if you are a farmer and you sell your land, you have no more business. In other words, it's up on paper only.

I think Thailand has a great future, both for farmers and as manufacturing platform. Japan recently announced it needed 700,000 skilled Thai workers for plant expansions in Thailand in the next 10 years. Thailand only has a pop of 60 million, so you can see how big this is.

I guess Japan is going to use Thailand to compete head to head with China manufacturers.

Back in the US I think equities and property are fine. I am a bit jittery about oil, so maybe you want some oil stocks for leavening, or play long on the NYMEX.

What do you like?

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