If you own a home-based or other small business, chances are you’ve struggled over the last few years to obtain credit―so much so that you may have given up trying.  According to new survey data collected by The Gallup Organization for the National Federation of Independent Business (NFIB), you aren’t alone. The number of small-business owners seeking credit was just 48% in 2010, down from 55% in 2009.  The good news is that of those that did apply for credit last year, more of them got all, if not most, of what they needed than in the previous year.  Nonetheless, fully 16% of small businesses that applied for credit in 2010 were denied―a significant number to be sure.

In an effort to spur lending on the part of community banks to small-business entrepreneurs and broaden their access to credit, the $30 billion Small Business Lending Fund was signed into law this past September as part of the Small Business Jobs Act of 2010.  According to Colleen Murray of the U.S. Treasury Department, the feedback from community banks has been very positive thus far and strong participation is expected, even though the deadline for program participation is still more than six weeks away.

At first glance, a recent poll conducted by the Independent Community Bankers of America seems to contradict Murray’s assertion.  It found that 70% of internal respondents did not intend to tap the lending fund.  However, the two reasons most often cited may shed some light on that result.  They were:  1) Either the respondents were well capitalized already, or 2) They weren’t seeing enough loan demand to warrant participation.  One theory is that reduced demand is perhaps the result of small businesses having been so beleaguered by the credit crunch that they are backing up and regrouping before diving back into the application process. 

A good number of community bankers continue to actively debate the merits of the program at this time based on a number of key factors.  First, there is some concern that telling banks they can pay less by lending more is a dangerous proposition, as it encourages them to incur an unnecessary level of risk.  Second, some local banks are wary about taking government funds for the stigma it creates and the fact that the rules for borrowing from the feds have been known to change mid-stream.

The nation’s leading small business association, the NFIB recently heralded the Small Business Lending Fund as a good first step toward addressing the challenges faced by today’s small businesses.  However, it also cited the critical need to recognize that lending is only one of many problems they face.  “While the program…is a step in the right direction, it’s important to remember that access to credit is not the largest problem keeping small businesses from hiring,” said NFIB Senior Vice President Susan Eckerly.  “The number one problem facing small business is lack of sales.”  Furthermore, Eckerly says small business owners are still reluctant to hire additional employees because they are watching closely to see what the potential impact of higher taxes, healthcare mandates and increased energy costs might be in the next few years.

Sources:

Small Businesses’ Demand for Credit Fell for a Second Consecutive Year, National Federation of Independent Business, press release, Washington, DC, February 2, 2011.

Douglas, Danielle.  The Washington Post.  Small Business Lending Fund Getting Mixed Reviews from Bankers, January 17, 2011.

President’s Small Business Lending Fund a Step in the Right Direction, National Federation of Independent Business, press release, Washington, DC, February 2, 2010.