U.S. Federal Reserve Chairman Ben Bernanke is urging banks to boost their lending to small businesses as it’s an important factor for continued economic growth and lowering the unemployment rate. He says, “Making credit accessible to sound small businesses is crucial to our economic recovery. More must be done.”
Since February he and other regulators have been trying to get banks to increase their lending to smaller businesses as the lack of bank assistance has evidently played a role in the economy not picking up as expected. Even though larger companies employ around 60 percent of jobs, smaller businesses still have a significant impact, generally increasing job creation. Bernanke has noted that over the last 20 years, small businesses have accounted for approximately one-quarter or ten percent of work force job creations.
Money has been granted to the larger companies, which have allowed them to expand and hire, but it’s the other businesses that need the help. The Obama administration sent a proposal to Congress in an attempt to set aside $30 billion for a program aimed at small business funding. This funding is to come from small to medium sized banks whose assets are under $10 billion. It is hoped this will encourage them to provide small business loans to start-up companies.
Small business owners are claiming that depreciating collateral and real estate are having a negative impact on them qualifying for loans. They say that working capital and credit lines are mandatory to stay in business. Federal regulators have noticed a sharp decline in small business lending when $710 billion was handed out in 2008 as the country suffered its peak financial crisis, compared to $670 billion during the first quarter of 2010.
Karen Mills, head of the U.S. Small Business Administration explains, “Contrary to popular belief, it’s not just the small firms that are struggling to survive that need these loans. It’s also the small firms that are seeing growth despite the current economy. Some firms are ready to expand and hire more workers. If these healthy, creditworthy, small businesses can’t get loans to help them create jobs, something is very wrong. Something is still broken,” she said.
Many small business owners have been forced to use their retirement savings or their own personal credit cards due to lack of financial aid. Acquiring assistance from traditional lending institutions is difficult, even for well-established businesses. With this being the case, it’s no wonder that more and more small businesses are turning to private lending institutions for financial assistance.
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