The U.S. Treasury Department’s Small Business Lending Fund (SBLF) has become a source of small business loans. About 650 community banks have applied for $9 billion in capital from the SBLF. A surge in this loaning activity is expected until June 6.
It is during the last fallout that a $30 billion pool got created so as to make low cost capital available to community banks. The idea is to stimulate small-business lending by banks to business owners at rates much lower than it used to be before.
But then there is still reluctance when it comes to participation by banks. The reason is many businesses were not sure how they are going to use the funds. Others seemed concerned about the control that government will show for the money granted. Moreover, there is the fear among business owners that participation in SBLF may invite insolvency. So, banks don’t want to be guilty by association. Till now banks have applied for only one-third of the funds available.
Small business owners have shown reluctance when it comes to borrowing. The uncertainty in the economy makes it very tough for small businesses to forecast financial needs. TARP experience is still haunting. Uncertainty in gas prices and jobless recovery are other primary concerns.
While several banks have shown interest to increase lending in 2011, the Biz2Credit Small Business Lending Index analysis found different results. An analysis of 1000 loan application has revealed that lending for small businesses rose from 43% in last quarter of 2010 to 45% in first quarter of 2011. Approval rates for small business loans fell from 10.6 % in 4th quarter of 2010 to 9.8% in 1st quarter of 2011.
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