Loans to small businesses and small farms declined in 2023 as interest rates rose and lending standards tightened, according to three federal banking agencies with responsibilities for the Community Reinvestment Act (CRA).
Compared to 2022, the number of loans granted to small businesses decreased by 5.1% and the number of loans granted to small farms. diminished by 5.6%, according to a information sheet published Monday (December 16).
The dollar amount of these loans decreased by 8.9% and 5.2%, respectively, in 2023 compared to the previous year, according to the fact sheet.
“The decline in lending is likely due, at least in part, to rising interest rates and tightening lending standards,” the fact sheet states.
These figures are based on the agencies’ analysis of national summary statistics for ARC 2023 data, according to the fact sheet.
They were compiled by the three federal banking agencies that are members of the Federal Financial Institutions Review Board: THE Board of Governors of the Federal ReserveTHE Federal Deposit Insurance Corporation (FDIC) And THE Office of the Comptroller of the Currency.
The data covers only a portion of credit extended to small businesses and farms, because depository institutions and nonbank financial institutions that do not report CRA data also make loans, according to the data sheet. information.
In terms of the number of loans issued in 2023, about 94.9% of small business loans and 80.2% of small farm loans were for amounts less than $100,000, according to the fact sheet.
The analysis also found that 54.8% of small business loans and 58.1% of small farm loans went to businesses with revenues of $1 million or less, according to the report. information.
Only about 8.5% of small and medium businesses (SMEs) found that working capital loans from banks were readily available, according to PYMNTS Intelligence and Cross the river collaboration, “What’s Next in Credit: Why SMBs Prefer Business Credit Cards for Short-Term Financing.”
The report finds that the challenges faced by these businesses suggest that it may be difficult to qualify for business financing in the current economic environment.
The FDIC said in October that a high-contact approach and in-person visits to bank branches were “key channels” for small business loans.
