No wonder the economy is in a FUNK!
A Credit Crunch That Lingers
Forget the improving economy. Entrepreneurs still find it hard to get loans. Here's why we're in this mess—and how we may get out of it.
The economy is on the mend. The government has launched a boatload of programs to get small businesses financing. President Barack Obama has urged banks to give the companies a "third and fourth look" before rejecting them for loans.
Yet entrepreneurs are still struggling to land credit. Only half of small businesses that tried to borrow last year got all or most of what they needed, according to a survey by the National Federation of Independent Business. In the mid-2000s, 90% of businesses said they got the loans they needed.
What's going on here? Why is the credit crunch alive and well when it comes to small businesses?
Part of the problem is that most of the government programs created to address the problem have focused on Small Business Administration loans, which total less than 10% of overall lending to small companies.
But there's a wider issue at work. Banks and the government are trying to avoid repeating the mistakes that led to the subprime meltdown. It's a perfectly understandable goal—but it's freezing up financing.
Federal regulators, for instance, say they want banks to make prudent loans, even as the pressure to give out credit grows. Some banks, meanwhile, think many more businesses are bad risks these days, and they don't want to damage their balance sheets by making questionable loans.
There's also lots of finger-pointing. Some bankers say loan volume is down because demand is down; small businesses, they argue, are wary of taking on debt in uncertain times. Other bankers accuse regulators of pressuring them to curb lending, while regulators say banks are just making them the fall guy.
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