Bank lending to small businesses has started to grow this fiscal according to Federal Reserve. Signs of increase started from last year when 10 percent loan hike took place. In 2009, lending dropped by 19 percent and in 2010, there was 9 percent drop from peak years.
The funds being lent is in form of lines of credit and not really traditional loans. It is also found that banks are holding huge amounts of cash and keeping businesses on wait instead of using the capital to open factories and powering business plants. Banks are continuing to hoard cash though they have started to increase loans. JPMorgan has $200 billion in business deposits, Wells Fargo and Bank of America also have larger deposits drawn from middle-market businesses.
It is true that businesses have started to feel better now but then there are still not enough signs of business boom. Business owners are not sure about the future and this is true for those that are successful. They feel uneasy keeping the bruising recession in mind and want to wait until the economy improves more.
Analysts are keeping a close eye on bank’s lending rise as this is good clue about hiring of employees by companies. Unemployment is at a high 8.3 percent though it has fallen from its recessionary peak of 10 percent. Loans from banks help entrepreneurs to open new companies and launch new plants. New investments mean more money for people. It re-energizes the economy. Small enterprises are the ones that depend more on bank loans for making investments in new projects.
Small businesses criticize banks for being too miserly while lending loans during recession. Banks made it worse when they pulled back free credit flow during the time when economic recovery started to take place.
This article was submitted by Raj Tulshan, Director of Business Development of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to email@example.com