Something’s Happening in the Smallbiz Lending Market

When lenders retrench, it often means economic turbulence ahead.

By Ami Kassar

Ever since Covid started, and with all of the economic, social, health, and political dominoes that have kept falling since then, I have tried to avoid paying too much attention to economic forecasts and predictions. As you may have noticed, that big recession so many predicted is still not here. Similarly, I will believe that interest rates are going to fall when I see them fall.

The reality is that there is no playbook for our current environment. I am unaware of a time in history when governments around the world printed trillions of dollars to keep people alive and off hunger lines and to keep banks solvent. No one really knows how economies will evolve after such a shock, and everyone is guessing. That said, I have always thought that cracks in the small business lending market can indicate impending economic challenges. Recently, it has been apparent that the market is shifting.

Funding Circle, a U.K.-based small business lender that has been lending in the U.S. for several years, recently announced plans to sell its U.S. division. In 2023, the company lent out $491 million in the U.S. and reported a loss of $29 million from those efforts. Ironically, Funding Circle is one of the lenders that  lobbied the SBA to change its rules to allow it to enter this market. The lobbying was successful but the company is leaving the market anyway. 

And Funding Circle is not alone. Amazon recently announced that it will stop underwriting loans for its $140 billion Marketplace business, shutting off an important source of capital for its third-party sellers. A few months ago, Business Insider published an article noting that Amazon’s economists have growing concerns about rising defaults in their portfolio.

And Fund-Ex Solutions recently shut down its SBA business. In fiscal year 2023, it issued just shy of $145 million in SBA loans. It issued $69 million in SBA loans in the first five months of this fiscal year. Many members of its team have moved to a small community bank in Alabama. At MultiFunding, we recently learned that one of our primary SBA lenders, a community bank in California that we have worked with for more than five years, has tightened up its credit terms. What does this all mean? 

Time will tell. But if history repeats itself, when small business lending starts to decline, it is often a warning of coming economic turbulence. Of course, if that proves to be true in this case, we just may see those interest rate drops after all.

Ami Kassar is CEO of MultiFunding.

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