Small business commercial and industrial loans have fallen nearly 27 percent since the end of 2020 due to the end of the Paycheck Protection Program and reduction in SBA-guaranteed loans, according to the Federal Reserve Bank of Kansas City’s Small Business Lending Survey.
New small business C&I loan balances spiked approximately 38 percent as financing shifted from term loans inflated by PPP to credit lines, wrote the survey authors, KC Fed Assistant Vice President Dustyn DeSpain and Senior Analyst Thomas Hobson. In their findings, the pair compared two quarters that did not include PPP funding, the fourth quarters of 2020 and 2021. “On net, credit quality maintained its upward trend with loan approvals increasing across all bank sizes and loan demand remaining strong,” they wrote in the March 29 report. “Respondents reported tightening credit standards and loan terms.”
Unveiled in 2020 following the onset of the pandemic, PPP drove large increases in small business and farm loans, according to an analysis of 2020 data by the Federal Financial Institutions Examinations Council. The analysis of 690 lending firms found that approximately 8.4 million small business loans of $1 million or less were reported — nearly 11 percent more than the previous year. Those loans totaled nearly $461.8 billion — a nearly 79 percent jump from 2019. PPP dollars also drove a 52 percent spike in community development loans in 2020 to $169 billion.
As of Dec. 26, more than 80 percent of the total PPP loan volume had been forgiven. During the fourth quarter of 2021, the ratio of SBA-guaranteed small business loan balances declined 41 percent from the previous quarter, to 18 percent. This still more than doubles the approximately 8 percent of pre-pandemic balances typically guaranteed by the SBA.