Economists disagree on a lot of things, but here is one that everybody pretty much knows for sure: Credit is the lifeline to an economy, and when it dries up you can count on economic growth following suit. That’s why a new analysis on small-business lending in the United States is so concerning.
The report, by the Cleveland Federal Reserve, makes the blunt point that since the Great Recession, U.S. small-business lending has dropped sharply. According to its figures, the value of commercial and industrial loans of less than $1-million (U.S.) – a figure often used as a proxy for small-business loans – is now 78 per cent of its 2007 second-quarter levels. In actual numbers, there were 344,000 fewer of these loans at the end of the period, despite the fact that there were 100,000 more small businesses in the United States.
So who’s at fault? According to the Fed researchers, everybody, apparently. Although the recession hurried things along, banks have been shifting away from small-business lending since the late 1990s, instead looking for more profitable ventures. Small businesses have cut back on their asks too, knowing in advance that they are not credit-worthy. Small-business owners often put up their homes as collateral – something that was easier to do in the (real estate bubble) pre-recession days than it has been more recently. Regulatory standards have gotten tighter as well.
Read more: U.S. economy still hog-tied by lack of small-business credit - The Globe and Mail
The report, by the Cleveland Federal Reserve, makes the blunt point that since the Great Recession, U.S. small-business lending has dropped sharply. According to its figures, the value of commercial and industrial loans of less than $1-million (U.S.) – a figure often used as a proxy for small-business loans – is now 78 per cent of its 2007 second-quarter levels. In actual numbers, there were 344,000 fewer of these loans at the end of the period, despite the fact that there were 100,000 more small businesses in the United States.
So who’s at fault? According to the Fed researchers, everybody, apparently. Although the recession hurried things along, banks have been shifting away from small-business lending since the late 1990s, instead looking for more profitable ventures. Small businesses have cut back on their asks too, knowing in advance that they are not credit-worthy. Small-business owners often put up their homes as collateral – something that was easier to do in the (real estate bubble) pre-recession days than it has been more recently. Regulatory standards have gotten tighter as well.
Read more: U.S. economy still hog-tied by lack of small-business credit - The Globe and Mail
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