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.
Small business lending
Small business lending to get boost from TARP funds
The U.S. Treasury Department announced today that Main Street is about to get some of the same home cooking enjoyed by Wall Street.
As much as $1 billion from the Troubled Asset Recovery Plan will be made available to banks, credit unions and thrifts certified by the Treasury as Community Development Financial Institutions (CDFIs). CDFIs are committed to lending to businesses in poverty-stricken rural and urban areas.
During a time when small business lending dropped off precipitously, the Obama administration has met with bitterness from voters and struggling small business owners resentful of the $700 billion given to some of the largest Wall Street banks, which, in turn, refused to loosen the purse strings and spread the wealth.
Earlier this week President Obama asked Congress to make another $30 billion of the remaining TARP bail out money available for small business lending from community banks. Last week, in his State of the Union address, Obama stressed the urgency of creating new jobs to stanch the small business failures contribution to high unemployment levels. Roughly half of American jobs are in small businesses.
Congress is not required to approve the money to CDIFs, but because the small business lending plan is an altogether new program, Congress must approve it. Congressional members, however, are already giving the lending plan a stiff arm.
“The law is very clear. The monies recouped from the TARP shall be paid into the general fund of the Treasury for the reduction of the public debt,” Sen. Judd Gregg, R-N.H., said in a Senate Budget Committee hearing Tuesday. “It’s not for a piggy bank because you’re concerned about lending to small businesses.
Last month, the 22 banks that received TARP bail out money announced they were cutting another $1 billion from small business lending for the tenth straight month.