Small Business Lending And Loans From Small Banks–Financial Institutions Say Businesses Are Not Borrowing

Unemployment still remains a problem in our nation and solutions to combat this problem have many looking to small businesses for job creation. Federal Reserve Chairman Ben Bernanke stated recently that small businesses employee almost half of all Americans and are responsible for 60% of new jobs created. For this reason, many lenders are being asked to make capital more accessible to small businesses so that these companies can grow, expand, and more importantly, hire more workers.

However, there have been reports that small businesses simply do not want capital or more debt for their company. Consumer spending is down and many businesses are said to be unwilling to take the risk that comes with obtaining a small business loan. These sentiments are echoed by many lenders across the nation who say that they have the funds to make loans for small businesses but these companies are simply not borrowing.

Financial institutions also cite the fact that financial regulations and new financial reform are causing trouble since businesses that are seen as a risk in any way may cause the bank more hardship if they lend. Banks may be forced to put up more cash against a loan that is considered risky by regulators, but he’s lending institutions also say that they are being hard pressed to make lending opportunities available to small businesses. However, numerous banks say that businesses are not in a position to expand but may need capital to simply stay afloat, which is not beneficial when that capital comes in the form of debt.

On the other hand, many small businesses have been seeking small business loan opportunities in order to hire new workers, buy more equipment, or handle a larger number of clients and jobs. There seems to be two polar opposite sides in the small business loan debate as small business owners say they need capital and access to small business loans, while lending institutions say that these companies either do not want loans or are not in a position to obtain more debt.

While there are proposed incentives like tax breaks to small businesses and additional funding that may be made available to the Small Business Administration, which would allow access to more funds, banks are still saying that businesses and many financial institutions are not in a position to lend the way many federal officials or small businesses would like.

This seems to be problematic since the economy cannot begin to return to full strength unless cash is circulating from consumers. Consumers do not spend due to unemployment, which is the result of many small businesses being unable to hire or create new jobs. While there are companies who can benefit from small business loans, there are many who fear that businesses are simply unwilling to add more debt to their organization through a small business loan simply because they do not have the inflow of cash that will allow them to repay this debt.