Banks are being forced to scale back the size of their loan forgiveness programs to tackle the huge backlog of small business loans.
That is the conclusion of the bank’s annual review of the industry, which was published on Tuesday.
The review found that in the year to the end of March this year, banks were offering loan forgiveness for between $1.8bn and $2.1bn, and that only 1% of small businesses could be considered eligible for the program.
“Small businesses are struggling to access affordable credit, and a lack of information on loan forgiveness is hampering their ability to access a loan,” the bank wrote in its annual review.
This year’s report, published on Monday, found that while loan forgiveness was more generous than it was a year earlier, it was still a very small portion of the total market for small businesses.
And in many cases, small businesses were still not eligible for loan forgiveness at all, according to the report.
While the amount of small-business loan forgiveness available to small businesses has risen significantly over the past five years, the amount available to borrowers of all sizes is still far lower than the level of loan forgiveness offered by banks and lenders, it said.
Small businesses that have applied for loan relief are still being excluded from some of the most popular loan forgiveness options, such as the Earned Income Tax Credit and Section 8.
A lack of clarity about loan forgiveness policies has also hindered the ability of small lenders to lend to businesses that are less than a year old, which can lead to losses for the small business.
“It’s clear that lenders need to be clearer about what they can offer borrowers and what they cannot offer borrowers, and to offer more loan forgiveness to businesses at lower interest rates than other types of lenders,” the Bank of American said in a statement.
In February, the US Treasury Department warned that loan forgiveness “is an inadequate tool to spur small businesses to start or expand.”
Small business borrowers are facing more competition and higher interest rates from more banks, with many having to find alternative financing sources.
As part of the review, the bank said it had implemented a new loan forgiveness program that will provide loan forgiveness through a range of programs, including a small business credit card.
It said it was also expanding a small-lending service in the US that offers loan forgiveness and other support to small business borrowers.
But the bank warned that the program was still far from being fully rolled out in the United States.
Its new program will be available for customers who have been in a business for less than two years and are less likely to be in a different category than small businesses that were formerly covered by its existing loan forgiveness offer.
Loan forgiveness programs are also available for individuals who are not eligible under the Small Business Administration’s Small Business Loan Guarantee program.
“While the overall scope of loan relief programs offered by the banking industry is improving, it is still not enough,” the report said. Read more: