Credit Should Not Be A Problem For Small Business; What’s The Problem

By James Fox on July 16, 2010, 8:27 am

Small businesses produce more than 50 percent of America’s gross domestic product. In the last two recession and the economic downturn that occurred after the 9/11 attack, small business lending actually rose until the economy recovered. Current economic conditions are worse than they were in any previous recession since the 1940s. Economists believe that small business lending is vital to getting America’s economy moving again, but many proprietors of small stores and services are finding it hard they need to get the loans they need.

Small Business Loans Are Down

Government forced banks to lend money to people it would not have lent money to normally. The result was that many people wound up with mortgages that they could not afford once the rates for the loans went up. Although the sales of homes have stabilized, there are still more homes on the market than there are qualified buyers to fill them. In part, this is because banks have cut down on the overall amount of lending that they do. At the time of writing, the big banks are reluctant even to lend money to each other and trickle of credit available is not reaching small lenders. The small business man and the new home buyer are affected the hardest by these changes. Large banks only want to take a risk on borrowers they believe can pay them back.

 

How The Credit Crunch Affects The Economy

Small business owners cannot get loans to expand their business, and the lack of extra money makes the purchasing of large ticket items less likely. Although President Obama has mouthed the words ‘recovery’ in many speeches, consumers, businesses and economic experts do not expect the credit crunch to resolve itself in the near future. Reluctance to take out loans and the reluctance to lend has caused people to increase their savings. When small business loans increase again, it will be a sign of the end of the crisis.

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