Small business bank loans hit 12-year low, damaging job creation

Recent federal figures indicate that small business bank loans have fallen to a 12-year low, MSNBC reports.

Federal Deposit Insurance Corporation data shows that while overall commercial and industrial bank loans have increased for five consecutive quarters, small business loans of $1 million or less have been falling in number for the past three years.

The news source notes that the shrinking loans are having a damaging effect on small business jobs. Nearly two-thirds (65 percent) of jobs created between 1993 and 2009 came from companies with fewer than 500 employees, according to figures from the Small Business Administration. However, the lack of funding is taking its toll, and just 7 percent of respondents to the National Federation of Independent Business' (NFIB) latest Small Business Optimism Index said they plan to create new jobs over the next three months - the strongest reading in 38 months.

According to NFIB senior policy analyst Holly Wade, the problem isn't that banks aren't able to provide funds.

"We've heard from many banks that we've talked to that they have enough money to lend, it's just that there aren't enough borrowers out there," she said, as quoted by the news source.

NFIB surveys revealed a rise in the number of small business owners who haven't applied for a loan because they don't believe they'll be granted one. Last year, 15 percent of companies refrained from applying for this reason, while nearly one-quarter (24 percent) said they reduced the amount they applied for in order to improve their chances of being approved for funding.

David Ehreth owns a sauerkraut and pickle company in Healdsburg, California, that employs six people. He considered himself a good candidate for a small business loan because of his "relatively high net worth" and lack of debt, as well as his company's solid record of steady growth.

"I was just flatly turned down without any discussion," Ehreth told the news source. If his application had been approved, the money would have gone toward purchasing machinery to help grow his brands. Because it was denied, he and his employees continued performing tasks manually, which slowed the business' growth and in turn hurt profits.

Despite many small businesses experiencing problems securing funding, NFIB's November index saw a modest uptick in employment, with respondents reporting an overall increase of 0.12 workers per company. More than three-quarters (76 percent) said they had not made a net change to their workforce, while 11 percent cut down and 13 percent added staff.

The latest Intuit Small Business Employment Index found that small enterprises created 55,000 jobs last month. However, both work hours and compensation decreased by 0.3 percent and 0.18 percent, respectively.

Furthermore, this month's ADP National Employment Report found that small businesses were responsible for more than half of the country's 206,000 increase in private sector employee from October to November. Companies in the small business category were defined as enterprises with between one and 49 employees for the purposes of the report.

Joel Prakken, chairman of Macroeconomic Advisers, was optimistic about ADP's findings.

"An acceleration of employment is consistent with data showing that GDP growth … is gradually recovering," he said.

However, the small business sector still has a long way to go before reaching pre-recession levels.