Small Business Lending Trends

The Consumer Bankers Association (CBA) and Small Business Financial Exchange (SBFE) released the Q4 2022 Small Business Lending Trends analysis examining key credit information for America’s small businesses. The report reflects the ongoing economic headwinds impacting small business credit, including persistent inflation and interest rate hikes.

The Consumer Bankers Association (CBA) and Small Business Financial Exchange (SBFE) today released the Q2 2022 Small Business Lending Trends analysis, examining key credit information for America’s small businesses. Notably, the report found that small businesses are willing to become more leveraged, driven largely by elevated inflation rates and the expiration of pandemic-related governmental assistance. 

Key Findings

• Delinquency rates slightly decreased, specifically for card and loan accounts, continuing a downward trend seen over the past six quarters. 
• Credit utilization increased to the highest level since the pandemic began. 
• Charge-off rates increased slightly but remain below pre-pandemic levels. Unsecured account types have leveled-off after higher losses experienced during the pandemic.
• New account growth slowed during Q2 after almost 15 months of steady increases.

Why This Matters

• The small business ecosystem remains stable with several metrics showing continued movement towards pre-pandemic levels. At the same time, historic inflation and ongoing economic uncertainty has clearly influenced the lending decisions of small businesses.  

A full copy of the analysis is available HERE.

The CBA-SBFE Small Business Lending Trends analysis offers quarterly data on delinquencies, credit utilization and credit utilization by account type, and charge-off rates. In addition to the data, the analysis offers a brief breakdown of each data set.

The data used to compile the analysis includes information collected from SBFE members on small businesses and their payment performance on commercial credit accounts.

The report found even as traditional metrics slowly return to a more “normal state,” supply chain disruptions, labor shortages, and historic levels of inflation continue to negatively impact an already restrained small business ecosystem. Key findings from the analysis, which examined data from Q4 2021, include: Delinquency increased slightly for most account types in the most recent quarter, credit utilization continued to increase slightly from the low point in March 2021, but remains far below pre-pandemic levels, charge-off rates declined for all account types in the quarter. Specifically, unsecured account types have leveled off after higher losses seen at the height of the pandemic.

Key findings from the analysis, which examined data from Q2 2021, include: Delinquency continued to decline for all account types in Q2 2021 and is at its lowest point in the analyzed period for all account types, utilization increased slightly from Q1 2021 due to greater utilization on commercial cards, which have seen an uptick in balance even as limits have remained consistent. Q2 2021 marked the first increase in utilization since the start of the pandemic, charge-off rates declined in Q2 2021 for all account types except term loans, whose losses have been at a higher-than-normal level of the last two quarters.

In the fourth quarter of 2020, the impacts of the pandemic continued to weigh on the small business community . The liquidity infusion provided by Paycheck Protection Program (PPP) and other assistance programs continued to stabilize certain measurements as the year ended. However, as the initial round of PPP funding ended in the 3rd quarter, key delinquency metrics began to rise. These signs of stress on the industry may be short lived as the second round of PPP funding begins early in 2021 and other assistance efforts begin rolling out in the same time period.

Overall Observations

In the most recent quarter, we begin to see the impacts of the COVID-19 pandemic on small business lending in the United States. SBFE observes delinquency peaking in early Q2 2020 for most account types, while charge-off figures increased late Q2, specifically for unsecured account types. The data also illustrates possible effects of COVID-19 assistance programs and an influx of dollars as small businesses’ average balances have declined for revolving debt throughout Q2 2020.

Overall Observations

Delinquency and charge-off metrics have remained consistent over the reported 24 month period. However, we have seen noticeable movement with the utilization metrics, specifically decreasing limits and balances. This may signal some tightening by lenders and small business borrowers. This change will need some additional time of observation to determine if a trend is forming or if this was a temporary movement.