Fed Chair Janet Yellen revealed to Congress this week that demand is not "very high" for small business loans, adding that some of this may be due to uncertainties caused by the financial crisis and the fact that home values have fallen so much.
Yellen's comments come at an interesting time in the world of small business, where, by several indicators, there is still a fair amount of optimism.
For example, the Wells Fargo and Gallup Small Business Survey for January was also at a seven-year high, and a separate report from Dun & Bradstreet Credibility Corp. and Pepperdine University, the quarterly Private Capital Access (PCA) index, also showed an increase in optimism, with small business owners expecting better financial performance, hiring projections and wages. But the latter index showed loan demand down 12 percent from when the index began in the second quarter of 2012, and 52 percent of business owners said they would not seek financing in the next six months.
How can optimism be higher if loan demand is low? It's largely because of how bad things got for small businesses during the financial crisis, and that today's conditions, while not as robust as they had been, look pretty good to small business owners. What's more, some owners are increasingly looking to financing alternatives, outside of traditional bank loans.
National Federation of Independent Businesses' Chief Economist Bill Dunkelberg said his group finds more than half of small business owners say flat out they are not interested in obtaining a loan.
"Optimism isn't really up and running," Dunkelberg said. "We've gotten so used to bad numbers that today's numbers look good. Small businesses haven't had a good enough reason to go out and borrow money and invest heavily yet."