Study Shows Bank Lending Less to Small Businesses
The money is there to lend, says economists
Small business loans are not profitable like other loans can be, and so banks are not likely to focus on them as often, says Ann Marie Wiersch, policy analyst of the Federal Reserve and economist Scott Shane.
Due to small business being a catalyst for job growth and broader economic flexibility, the report noted that policymakers ought to consider action that will spur small-business owners to attain better access to varying credit options.
Wiersch and Shane noted that the general small business landscape is unlikely to improve any time soon. The issue, according to the two experts, is simply messy.
"It's not just demand. It's not just supply. There are multiple issues here," Wiersch said in a summary of the report titled, "Why Small Business Lending Isn't What It Used to Be."
"That's the reason it's so important to carefully identify the real sources of the small business credit crunch," the summary said. "Money thrown at the wrong problems won't help small businesses get the credit they need, and the whole economy could suffer right along with them."
Research has shown a clear fact that banks have enough money to divvy out, so that is part of the overall problem. Instead the efforts could be focused directly toward addressing diverse credit needs and options in order to give small businesses an opportunity to make their product more profitable.
The analysis by the Federal reserve has shown that income from households that are headed by small businesses dropped by 19% since 2007 up to 2010. Hiring small businesses dropped in the same period, with 24% of 2007 businesses planning to hire, while 6% said the same only 12 months later.
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