Half of Small Businesses Are Denied Loans
Oct 20th, 2010 @ 7:06 PM by Amber Nelson
A recent survey by the Federal Reserve found that almost half of all small business loan requests are denied by banks these days, a very troubling statistic considering the following information:
“Small firms employ nearly half of all Americans, account for about 60 percent of gross job creation, and historically have created more jobs than larger firms at the start of economic recoveries,” according to a report from the Federal Reserve Bank of New York released Monday as quoted on CNN Money.com. “Yet recent contractions in business borrowing may be limiting the capacity of small businesses to play this critical role.”
The Fed surveyed 426 small business owners about lending conditions from the first half of the year. Of those, 59 percent applied for some sort of financing and of those who sought loans, more than 75 percent received either none or only some of the funding they requested.
And why aren’t they getting the loans they want? Basically, lending standards have become so tight that they have choked off most business owners from qualifying. Although, Fed President Ben Bernanke recently said that
“banks are no longer tightening lending standards and terms and are reportedly becoming more proactive in seeking out creditworthy borrowers.”
According to the Fed, during the April 2010 quarterly survey of banks, finally there are more banks loosening their credit standards than there are tightening them. Even still, those standards are going to have come down much farther in order to match funds to credit-hungry business owners. We’re in (I know technically, we were in) the toughest recession of the past 50 years, and very few people have come through it unscathed, in terms of credit scores.
Let’s just hope that for the sake of our economy, these banks will truly start taking greater risks on more Main Streeters, so that small businesses can do their job of pulling us out of this economic funk.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.