When Big Banks Won't Lend, and Small Banks Fail

By Carol Tice Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

In the world of small-business loans, it's the worst of times and the worst of times.

The volume of new small-business loans amongst the nine big U.S. banks that received federal bailout money plummeted nearly $20 billion in January compared with December, the U.S. Treasury Department reports. The banks loaned nearly $36 billion, the smallest monthly total since last October, when the banks loaned $41.6 billion.

With big-bank lending still down, many finance experts point entrepreneurs toward smaller, community banks as a better option. The problem? A substantial number of those are going bust.

Treasury has expressed concern that small banks continue to fail at a steady pace -- 27 more so far this year, nearly 200 since the beginning of 2008. The chaos created by bank failures includes broken relationships between entrepreneurs and local bankers, leaving entrepreneurs to scramble to find a new bank and establish the rapport that usually precedes getting a loan.

Partly as a result, total U.S. bank lending is down 7.4 percent. One forecaster predicts a small-business lending shortfall of as much as $500 billion as the economy continues to struggle. That's a lot of small-business activity being stymied for lack of capital. Surviving community banks are being unusually cautious in lending further, as they closely monitor how their existing small-business lenders are faring.

So entrepreneurs are caught in a pincer -- the biggest best banks not lending on one hand, community banks overleveraged or overcautious on the other. It's hard to see a good solution here.

It's no surprise that alternative lending vehicles that don't involve banks are getting a lot of attention lately, from purchase-order financing to peer lending to selling receivables.

Entrepreneurs have always been creative when it comes to operating their businesses. Now, they have to be more creative than ever when it comes to finding the funds they need to grow.

Carol Tice

Owner of Make a Living Writing

Longtime Seattle business writer Carol Tice has written for Entrepreneur, Forbes, Delta Sky and many more. She writes the award-winning Make a Living Writing blog. Her new ebook for Oberlo is Crowdfunding for Entrepreneurs.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

This 30-Year-Old's $6,000-a-Month Side Hustle Started Making Money 'Immediately' — But He's Not Quitting His Day Job

Derrick Mathy works in orthopedic surgical device sales and is on a mission to bring people together in real life.

Business Solutions

ChatGPT Isn't Cutting It for Busy Professionals Anymore

Find out where they're turning instead.

Business Ideas

70 Small Business Ideas to Start in 2025

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2025.

Business News

'Unprecedented in Our 53-Year History': Southwest Airlines Announces Its First Mass Layoffs Ever

The airline is eliminating 15% of its corporate workforce, including many in senior leadership positions.

Employee Experience & Recruiting

Newsflash: Barbara Corcoran Doesn't Fly First-Class, and Neither Should Your Executive Team

Shark Tank star Barbara Corcoran doesn't fly first class, and for a good reason. Business decision-makers, take notes!

Growing a Business

The Training (and Business) Philosophy That Sets This Self-Defense Studio Apart

At Nomad Krav Maga, Shane Langwell teaches more than self-defense by helping students strengthen their confidence, resilience and a sense of community that extends beyond the gym.