Conventional wisdom holds that it’s almost impossible for small businesses to get credit because banks aren’t lending. Some new data suggests that might not be exactly true.
A survey by the Federal Reserve Bank of Atlanta found that of 311 small businesses seeking credit in the past three months, 60 percent of the applicants were successful, meaning that they received at least some of the credit they sought.
Construction and real estate companies had the most trouble getting credit or loans. Of the 41 manufacturing firms that applied for financing, 71 percent received the full amount requested. Only 7 percent of the applications were denied.
While the Atlanta surveys only a small sample of businesses and not necessarily indicative of what’s happening across the country, it’s some of the only data out there.
Elizabeth Warren, the watchdog appointed by Congress to oversee the $700 billion Troubled Asset Relief Program, said in an interview with Bloomberg Businessweek that “policymakers are flying blind” because there’s not enough data on small business lending.
The U.S. House of Representatives recently approved President Obama’s $30 billion plan to pump money into small community banks to encourage them to lend to small businesses.
Some experts say there’s no evidence that these government infusions of cash to banks have worked. Despite similar plans over the past two years, small business lending remains weak.
It’s unclear whether the decline in business lending is because of banks’ unwillingness to lend or because more small businesses aren’t seeking loans, Warren told Bloomberg Businessweek.
The Atlanta survey found that of the 191 firms that did not seek credit in the past month, the majority (69 percent) said they did not need credit, had sufficient cash on hand or did not have the revenue to warrant more debt.
Nineteen percent of businesses said they did not seek credit because of unfavorable terms or because they expected to be denied.
A survey by the National Federation of Independent Business shows that credit has tightened, but few small businesses said their credit needs are unmet. Of the businesses that did not seek credit, the majority cited poor sales over difficulty in getting credit.
Raj Date, a former managing director at Deutsche Bank who now runs the Cambridge Winter Center research group, believes the government’s plan would increase lending to small companies by 10 percent.
Date said the money wouldn’t necessarily get to small businesses. Banks would use most of the money to cover losses on existing loans.
“Any time you offer subsidized capital to firms, the firms to whom it is most valuable are the firms with the most existing problems,” Date told Bloomberg Businessweek.
Brian Headd, an economist at the Small Business Administration, said to Bloomberg Businessweek if the businesses that do plan to grow – even if they are in the minority – can’t get credit, it’s still a hit to economic recovery and hiring.
Interestingly, the Atlanta survey found that eight of the 10 loan applications to the SBA were rejected.
About Biz2Credit
Founded in 2006, Biz2Credit, is an online small business platform that creates access to a competitive environment of lenders to empower the entrepreneur. The online platform matches entrepreneurs with credit solutions based on their business profile and preferences in a safe and price transparent environment. Biz2Credit has a patented technology which is used by over 100 major banks in the U.S., credit rating agencies like Dun & Bradstreet. Biz2Credit was ranked among 100 top emerging companies in the U.S. by KPMG and Stanford University in 2008 as well as the No. 1 financing resource by Entrepreneur magazine in the fall of 2009. With over $300 million in funding and over 25,000 SMB users in the U.S., we are the market leaders in this space. Have more questions? Please email Biz2Credit at: info@biz2credit.com.
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