Small businesses are still facing a tough time to acquire loans for their expansion, said the chairman of Federal Reserve, Ben S. Bernanke. In a Fed hosted conference in Washington, Bernanke disclosed that credit-worthy firms with strong cash flows are refused loans just because their collateral values have declined. Receiving of loans by small businesses is much required to help in speedy recovery of the US economy.
In last two years, bank loans to small businesses fell from $710 billion to $670 billion. Bernanke is imposing pressure on lenders to increase credit so as to boost growth and employment. “Making credit accessible to sound small businesses is crucial to our economic recovery and so should be front and center among our current policy challenges. Our message is clear: Consistent with maintaining appropriately prudent standards, lenders should do all they can to meet the needs of creditworthy borrowers.” said the Fed chief.
Consumer spending is crippled by “tight credit” The Fed policy makers pledged to help keep interest rates close to zero for an extended period of time. A resolution of the House of representative to pass a $30 billion plan bill to enable community banks find incentives on granting loans to small companies has been opposed by three Republicans.
Confidence Major Issue
The bill “would be very helpful” and a “good boost to the economy,” said Jack Hopkins, director, Independent Community Bankers of America. He thinks it is a confidence issue and so comments “We need to get confidence back into the markets, and that’s difficult when we’re hovering around 10 percent unemployment.”
A difficult situation
The US commercial and industrial loans have reduced from $1.6 trillion at the end of 2008 to $1.24 trillion. Recently many owners had to borrow loans based on credit cards and retirement accounts. “The formation and growth of small businesses depend critically on access to credit. Unfortunately, those businesses report that credit conditions remain very difficult,” commented Bernanke in a conference at Fed headquarters today. Bankers who were present in the conference said that they were willing to extend credit and asked business proprietors to meet their community lenders.
It is critical to find better information about potential borrowers. Banks do not find requisite information and so it is tough to make decisions says Denise Pickett, executive vice president at American Express Co. Also, Kevin Watters, officer in JP Morgan Chase & Co, opines that the problem faced by banks is “healthy borrowers not wanting to borrow.”
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to