Sunday, May 23, 2010

Small Business Credit Squeeze

Conventional wisdom holds that small business cannot get the credit it needs to stay afloat or expand. It is well documented that small business is the engine of growth and job creation in the economy. Reducing unemployment by creating new jobs will be hampered so long as tough credit conditions remain in place.

Meanwhile, the Federal Deposit Insurance Corporation (FDIC) says that one in ten U.S. banks are on their watch list for possible closure and restructuring. Most are community or regional banks that have doubtful commercial property loans on their books. These conditions make it risky to grant new loans to small businesses that may themselves be in danger of going under.

Yesterday, May 22, 2010, we received five credit card applications in the mail. A typical month totals 20-30, with credit lines ranging between $5,000 and $25,000, or more if we request a larger credit line. In a typical month we could readily secure $250,000 in credit lines with little difficulty. These offers are based on our credit scores, which imply credit worthiness.

Perhaps the small businesses that complain about the difficulty of getting credit are in declining communities or conditions in which they cannot present a viable business plan. Perhaps others are overextended and will fail anyway. No one to my knowledge has studied the books of a large representative sample of small businesses to determine their financial condition. Spokesmen and politicians representing small business rely largely on heartfelt anecdotal information, not systematic research.

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