• Lisa Simpson
• Jul 26,2010
• In: Foreclosure

Business Concerns Facing Difficulties in Getting Loans

The chairperson of the Federal Reserve Ben Bernanke has been asking the banks as well as the regulators to be more proactive towards small business concerns so that they can easily avail of loans – it being essential for the generation of jobs. Bernanke has also admitted that economists are disagreeing about the causes of contraction of lending during the pas two years.

By small businesses are meant those having less than 500 employees. These modest business houses give employment to about 60% of the workforce in America. The data from the feds show that the lending of such firms has dropped to less than $670 billion during the first three months of 2010. In the first quarter of 2009 it was more than $710 billion.

The reasons remain elusive. Many of the entrepreneurs opine that banks are not advancing loans to credit worthy applicants. This is a continuation of their overreaction to the previous phase of their over expansion that has been followed by stringent regulations.

But other economists argue that the weak health of the economy and the tattered balance sheets are responsible for the lowering the need for fresh lending. It may take years for the level of return.

Bernanke has admitted of this atmosphere of uncertainty. He said, “How much of this reduction has been driven by weaker demand for loans from small businesses, how much by a deterioration in the financial condition of small businesses during the economic downturn, and how much by restricted credit availability”? He concluded that perhaps all the three causes are responsible.

In a wide effort to reach the needs of small business communities the Feds held in all 43 meetings starting from last February till 30th June. Focus was also directed on businesses owned by the Latinos. In Detroit the centre stage was taken by the difficulties of the automobile industry. Bernanke stated that the tumbling of the real estate and the mortgage industry posed serious challenges. One owner at Detroit told him, “If you thought housing had decline in value, take a look at what equipment is worth”.

Some of the entrepreneurs have started to borrowing from their credit cards (personal) or drawing from retirement accounts.

The banks contend that they have not tightened credit but rather they have gone back to their conventional methods of underwriting.

The ultimate outcome of the ambivalent discussions was more of frustration than anything else.

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