Oct 14, 2009
Majority of small business owner in America can tell you how difficult it is to secure sufficient loan for their business. This difficulty is never more apparent than today as banks tighten credit in an effort to stop massive losses. The effect of this constraint is not only being felt by individual businessmen, but by the real economy. When expansion plans and prospective growth are hindered, overall economic growth comes to a standstill.
And the problem is, there are very little indications that banks will relax their lending standards in the near future. A survey conducted by the Federal Reserve Board revealed that senior bank officials expect that credit will still be tight until at least the middle of 2010. This credit squeeze points to an aversion to risk among today’s lenders. It has more to do with their concerns about the economy than the viability of individual businesses.
Banks are also worried about the high unemployment rate and their losses as credit card charge offs increase. As they expect more troubles in real estate, they will continue to hold on to their capital. Sam Thacker, a partner at Business Finance Solutions said that “the banks are just deathly afraid…I don’t see commercial banks coming back to the market anytime soon.” Although the above view might not sound good today, it might be healthier over the long term.
Right now though, businesses aren’t very happy with the banks’ reaction. Economists agree. They believe that bankers are overreacting because even stable companies are finding it difficult to borrow. But all is not bad news. Banks depend on borrowers to make money. Raymond Davis, the chief executive of Umpqua Bank said that “banks want to lend money” but the effects of the recession are still being felt. Be that as it may, without the banks’ help, the economy might take longer to recover because money is needed to stimulate demand and growth.
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