Plenty of small business credit available but few takers

small business credit

An NFIB survey found that plenty of small business credit is available, yet the economy is holding back demand. Image: CC quin.anya/Flickr

Lack of small business credit has been cited as a primary factor holding back economic recovery. The Obama administration has been implementing policies to increase the amount of money available to small businesses and encourage banks to lend to these companies. However, a recent survey shows that access to small business credit is high, while demand is low.

Demand for small business credit

Demand for small business credit dropped for the second year in a row, according to the National Federation of Independent Business. An NFIB survey found that fewer small companies sought to obtain credit because of weak consumer demand, a faltering housing market and an anemic economic recovery. Other small businesses assumed they would not be able to get credit, so they didn’t try. Those that did were successful more often. Small businesses requesting credit dropped from 55 percent in 2009 to 48 percent in 2010. Yet even though fewer businesses sought credit, about the same percentage were approved year-over-year, indicating that access to credit improved.

Small business lending growth

The Obama administration pressured Congress to pass a small-business lending measure last fall that included a $30 billion loan fund. To sell the package, economists projected that the money would result in about $300 billion in small business loans made by by community banks. Those projections have proven overly optimistic. Some businesses have been seeking credit, however, and of those that have, 41 percent were approved for the full amount. The survey also found that businesses persisting after initial rejections were successful on the second or third try, but the approved amount would decline with each attempt. Businesses were approved for credit cards 95 percent of the time on the first attempt.

Sound businesses avoiding debt

Ironically the best customers for banks sat on the sidelines, according to the NFIB survey. Small businesses that did not seek credit last year were stronger financially than businesses shopping for more debt. Most small business lending is tied to real estate, and the decline in U.S. property values was the single biggest obstacle of those businesses seeking credit.


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