Commercial and industrial loan balances fell by nearly 19 percent in the 3Q 2021, according to the Federal Reserve Bank of Kansas City’s 3Q 2021 Small Business Lending Survey.
“The decline coincided with a continuing decrease in the percentage of loans guaranteed by the Small Business Administration related to ongoing forgiveness of Paycheck Protection Program loans to small businesses,” the Kansas City Fed stated.
The 123 survey respondents reported increased loan demand, rising interest rates and improving credit quality. Year-over-year new small business lending rose by almost 10 percent, sparked by a nearly 41 percent rise in new lines of credit. Small business lending approval rates at small banks, however, fell from 91 percent in the second quarter to 71 percent in the third, the lowest since the survey started. Loan balances remain higher than before the pandemic began.
Other report findings included:
- New small business lending dropped by 37 percent, driven by a decrease in term loans. Nearly 40 percent of respondents reported a change in loan demand: Eight percent of midsize banks indicated stronger loan demand, but only 2 percent of small banks said the same. Approximately 10 percent of respondents indicated stronger loan demand in the third quarter, the third consecutive quarter with a net increase.
- Year-over-year total loans and total C&I loans dropped by 3.6 percent and 6.8 percent, respectively.
- Outstanding small business loan balances guaranteed by the SBA declined to 26 percent, 11 points lower than the previous quarter.