There is a surge in Small business lending and lines of credit. The credit flow to small businesses can help them grow and create jobs in the economy. This is really critical for the recovery of the economy.
It is found that small business lending and use of lines of credit are on rise. Timothy Geithner, U.S. Treasury Secretary, in a letter made it clear that bailed out banks can participate in Small Business Lending Fund (SBLF) even if they owe money in the $700 billion Troubled Asset Relief Program (TARP). Geithner also supported the philosophy of Republican Senator Charles Grassley that banks should not be paying debt that they owe from TARP with SBLF money.
The SBLF is a $30 billion lending pool that provides loans to small businesses by extending capital to qualified community banks having assets less than $10 billion. The fund will help community banks and small businesses work in conjunction to create jobs and foster growth of the economy. So far, 500 banks have already applied for Small Business Lending Fund. The treasury has also extended loan filing date up-to May 16.
It is only because of the Small Business Jobs Act that the State Small Business Credit Initiative got created and is funded by $1.5 billion so as to strengthen state programs to provide lending to small businesses.
But in-spite of all the government support, banks are still reluctant to make lending decisions even though they want to help small businesses with loan grants. An analysis of thousand loan applications on Biz2credit shows that approval rate has declined from 10.6% in the 4th quarter of 2010 to 9.8% in the 1st quarter of 2011. Large banks publicly state that they want to increase small business lending, but the reality never matches press releases.
However, loan approvals have also escalated slightly from 43% in final quarter of 2010 to 45% in first quarter of 2011. The increase in loan approvals is grounded on factors like less stringent underwriting criteria in lending parameters of local banks and increase in income of smaller banks from loans. Hence, small business lending depends on mixed results.
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