Fed: More lending to small businesses

Fed Chairman Ben Bernanke


Kai Ryssdal: Alright,so you take an economy. You wrap it in two plus years of tightening credit, deteriorating spending and an overall case of the blahs and whaddya get? Lots of things, of course, not many of them good. One is the curious case of small businesses. Even though they create most of the new jobs we get, they can't get enough cash. And the chairman of the Federal Reserve wants to do something about that. At a conference in Washington today, Bernanke said banks ought to lend more to small businesses that need it.

From the Marketplace Entrepreneurship Desk at Oregon Public Broadcasting, Mitchell Hartman reports.

Mitchell Hartman: Fed Chair Bernanke said today that even small businesses with strong cash flows can't get bank loans to fund operations and expand employment.

Bob Coleman publishes a trade newsletter on small-business lending. He says it's really the slightly bigger than mom-and-pop shops that are having the most trouble borrowing.

Bob Coleman: The person who's employing 50 to 100 people, that market has completely dried up in terms of credit.

To get loans flowing to credit worthy businesses, Bernanke wants bank regulators to ease up on underwriting standards. But Bill Dunkelberg, chairman of Libertyville Bank in New Jersey, doesn't think that'll help much.

Bill Dunkelberg: Well, we are lending to any good loan applicant that comes in. The problem is that a lot of good borrowers are on the sidelines.

He says the economy just hasn't improved enough for those businesses to risk borrowing yet. Dunkelberg is also chief economist at the National Federation of Independent Business. He says a lot of small businesses just aren't a good credit risk right now.

Dunkelberg: Seventy percent of those who were trying to get a loan really wanted it just for cash flow, which just really meant they were having financial stress. They weren't out there trying to borrow to expand or hire or to buy new equipment.

But not every small business is still hurting.

Randy Dellwo: For us, this year's been really good. I mean, we can hardly keep up with all the orders we have coming in.

Randy Dellwo's company-- RBD Instruments in Bend, Ore. -- makes measurement devices for manufacturers. Dellwo has 12 employees. He says his bank credit line has remained steady. But, he needs a half-million-dollar loan to finish R&D on a new product line and expand sales. He knows there's a market there. But his bank's not interested in taking the risk. Not a single bank he's contacted in the past year is.

Dellwo: Even companies that have good equity, and credit and good history are still having a hard time getting capital. If we could be funded, we could create jobs like right now, today, we could hire new people.

Instead, Dellwo's on the slow road to expansion and won't be hiring additional workers any time soon.

I'm Mitchell Hartman for Marketplace.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.
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I’d like to thank the Federal Reserve for recognizing the central role that small businesses play in creating jobs in our economy. The formation and growth of small businesses depends critically on access to credit, but it can’t stop there. It’s time to adopt a “credit-plus” framework to simulate the economy.
The credit-plus approach includes advisory services to prepare for growth, increase sales, and identify the right type of credit at the right time.
At Interise, our target group is existing employer small businesses in low- to moderate-income communities. It’s extremely challenging for these small businesses to achieve further growth on their own. Providing them with advisory services to prepare for growth and the trusted relationships to achieve it, through both sales and access to capital, has been instrumental in their success.
The ‘credit-plus’ framework of advisory services and a focus on sales is not just an idea, it’s a proven solution that our community of small businesses has implemented and succeeded with. In 2009, 375 of our entrepreneurs accessed, on average, only $55,000 in new financing, but were still able to increase their revenues by an average of 19% and create an average of more than 2 jobs per business.
I hope as banks embrace the Federal Reserve’s findings they will also embrace this credit-plus framework, and recognize that for small businesses to create new jobs we must also direct them to the right technical assistance and advisory services.

Jean Horstman
CEO, Interise

I run a small business credit marketplace(www.biz2credit.com).Some of issues of cash flow borrowing and good businesses sititng on the sideline are true. A big issue is continuing uncertainity in the market which is more damaging as even good businesses are hesitant to expand.

The French would have nationalized the banks by now...

Loosened underwriting standards was arguably the immediate cause of the present crisis; loosening them again would be folly. And in any case it's government, in the form of regulation, taxes, and targeted subsidies, that is the biggest barrier to small business growth. One of the best things we could do for small businesses is repeal the recent health-care law, for instance. Government's attempts to "help" the recovery have inevitably, as anyone with eyes or sense has been predicting since each measure was proposed, done far more harm than good. The best thing to do is geet out of the way.

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