A common refrain about business borrowing during the economic recovery is that large companies have returned to credit markets while small businesses have remained on the sidelines. While this story is frequently told with anecdotes, recently released data from the Federal Reserve Board provides a statistical picture of what has happened.
The statistical story differs somewhat from the anecdotes. It shows a divergence in loan demand between large and small companies much later than many of the more casual accounts suggest.
Every quarter the Federal Reserve Board queries top loan officers at 79 American and foreign banks operating in the U.S. about their customers’ demand for bank loans over the previous three months. Tracked over time, these numbers show whether demand for bank credit is strengthening or weakening.
The chart below shows the share of banks that saw increased demand for loans minus the share that saw decreased demand broken out separately for small and medium to large business customers since the latter part of 2007.
Net Percent of Senior Loan Officers Reporting Increased Demand for Commercial and Industrial Loans, by Quarter from Q3 2007 to Q1 2011
Source: Created from data from Federal Reserve Board, Senior Loan Officer Opinion Survey.
While large and small businesses reduced demand for loans largely in parallel as we headed into the depths of the recession and then increased demand in parallel in the early part of the recovery, their paths diverged in the second half of 2010. Since then large firms have increased their appetite for bank credit faster than small business. While we can’t know for sure why the larger companies accelerated their demand for loans faster, one plausible hypothesis is that they recovered more rapidly from the recession.