Is saddling the little guy with more debt the answer?
Banks across the country are denying loan requests from financially credible small businesses. Federal Reserve chairman Ben Bernanke has urged community banks to lend to small businesses, calling it “crucial to America’s recovery.”
Lenders say they want to help the small business owner and the economy, but there just aren’t viable borrowers. This is due, lenders say, to the fact that the loans needed by small business owners are for one of two reasons: helping a business stay afloat or business expansion. And with falling real estate prices, many small businesses don’t have the necessary collateral to back up their loans. Banks are feeling picked on by the federal government, which keeps pushing for new lending.
So why would a small business owner want to borrow money right now? The average answer is to reduce debt levels, a smart choice in a depressed economy. The other concern for the small guys is the new health care reforms and how they will affect businesses with fewer than 50 employees.
Washington has ramped up pressure on community lenders as well as large commercial banks to set up small loan funds. Regulators have attempted to grease the wheels with a program called TARP Jr., a $30 billion dollar small business lending fund for community banks.
But if most banks are claiming there are no viable borrowers, this doesn’t seem like much of a solution.
But something has to be done to give a boost to small business, which employes about half of Americans and accounts for 60 percent of new jobs. Will pushing loans on them be the answer?
The experts aren’t too sure. With consumer spending down and the overall economic climate unsettled, entrepreneurs don’t seem to be confident that this investment in the U.S. economy will pay off. And they fear that the little guys will be saddled with bigger debt.
One answer could be unsecured loans. A small business owner can obtain a loan from $10,000 to $5 million, with no collateral, minimal documentation, no annual fees and no prepayment penalty. All with rates starting at 7.93 percent.