Bank of America Increases Loans to Small Businesses

By Features FOXBusiness

Bank of America (BAC) said Tuesday it has increased lending to small and mid-sized businesses in 2010 by nearly $9 billion from a year ago.

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In all, the Charlotte, N.C.-based banking giant said it has made $45.4 billion in loans this year to small and mid-sized companies, a huge segment of the economy that has struggled to find its footing in the wake of the worst economic downturn in decades.

In a statement, Bank of America said the uptick in lending to the targeted borrowers is part of a commitment it made late last year. At the time, the bank said it would increase lending to small and mid-sized businesses by $5 billion in 2010.

Instead, Bank of America seems on a pace to far surpass that goal.

According to the bank, it loaned $81.4 billion to small and mid-sized businesses in 2009. So far this year it loaned $19.4 billion in the first quarter and more than $26 billion in the second quarter.

Since the economy collapsed into a deep recession in late 2007, one area that has resisted recovery has been credit for small and mid-sized businesses.

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Analysts have said that the lending pendulum swung too far in one direction earlier in the decade, a condition that contributed significantly to the downturn. But now the pendulum has swung too far in the other direction and obtaining credit to grow their businesses has become difficult for small and mid-sized companies.

Consequently, any increase in lending to those sectors, which provide nearly three-quarters of all U.S. jobs, is seen as good news.

“Small and mid-sized businesses are the engine of job growth, so the extent to which creditworthy businesses are able to get credit is integral to economic recovery,” said Greg McBride, of Bankrate.com.

But those companies are hardly out of the woods.

The good news, according to Gus Faucher, director of Macroeconomics at Moody’s Economy.com, is that credit for those businesses isn’t any tougher to get now than it was a year or two ago.

The bad news is that “it’s still very tight,” he said. “It’s still a significant problem for small and medium businesses.”

“What we’re really concerned about is the smaller regional banks. They’re the ones that do a lot of the loaning to small businesses and they’re still facing severe problems in part because they have a lot of commercial real estate loans on the books that are having problems,” Faucher explained.

In addition to lending, Bank of America has pledged to increase its spending with small, medium-sized and diverse businesses by purchasing $10 billion in products and services from those suppliers over the next five years, the bank said. Other efforts to help small businesses include recent improvements to the bank's two million small business credit card accounts - such as no rate increases on existing balances - and enhancements to the Advisor Alliance retirement plan platform, which serves more than 900,000 people from more than 40,000 businesses.

On Friday Bank of America will release its Lending and Investing Initiative report for the second quarter of 2010. In addition to small business lending, the report will detail residential mortgage activity, home loan modifications, commercial and corporate lending, and financing to Community Development Financial Institutions. The report will be available at http://bankofamerica.com/opportunity.

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