Bankers lose a bit of confidence in small businesses

In our quarterly survey of bankers, we look at banker sentiment for both consumer and small business credit.  Unlike our findings related to consumer credit, bankers are somewhat pessimistic about the small business sector.

Sentiment in Q2 reverted to the pessimism of 2010 after a brief improvement in the first quarter of 2011.  While 28% of respondents expected delinquencies on small business loans to decline over the next six months, 33% expected the number to rise.  That is a reversal of last quarter’s survey results when a plurality expected delinquencies to drop.  Moreover, 74% of respondents expected credit demand to increase among small businesses.  Only 46% expected credit supply to increase, meaning bankers expected credit to be tight for small business owners.

Despite this modest level of pessimism, there is reason to believe sentiment could rebound later in the year.  Preliminary data indicates that lending for small businesses picked up a little in May while defaults dropped.  This could be a harbinger of good things to come.  We’ll have to wait and see.