No More Credit For Small Business?
A few weeks ago, I wrote a post saying there was not a credit crunch for small businesses (businesses under 500 employees), and that in fact, the commercial and industrial loans from banks were up through mid-October. Furthermore, they had been consistently rising since September 2007. This information came from two economists who are consultants to regional Federal Reserve Banks. I think the information was sound.
However, I just read an article in the current issue of Entrepreneur magazine stating that 65% of senior bank loan officers reported that they recently tightened standards for small businesses seeking loans. This did not match what I had previously understood, so I called a banker I know who deals primarily with small businesses, and was told the federal bank regulators were insisting that the bank change the way it does business.
This came from a sound bank that has been dealing primarily with small businesses for decades. In fact, most local and regional banks were not a part of the financial debacle on Wall Street at all. Unfortunately, this banker was telling me that the federal government is now calling the shots on bank lending policy everywhere. No wonder the number of senior loan officers tightening small business loans is at a record level—it’s not the banks, it’s the federal government.
The biggest problem with this is that, it is small business that will lead the U.S. out of recession. Big business has proven many times over that they cannot improve a flagging economy…they are followers, not leaders. During the last downturn when almost 3 million workers were layed off in 2002, small businesses created over a million new jobs in 2003, and had almost all the 3 million unemployed back to work by the end of 2004—while big business was still downsizing. It would be another three years before big business even replaced the jobs lost in 2002 and 2003. We can expect similar (or worse) performance from big business this time around.
Here are my suggestions for stopping rampant unemployment and starting a recovery of our business sector:
- Have the government stop thwarting the growth of small business. It is not the small businesses that created our recession…it was the greed and incompetence of big business. Let the local and regional banks do their jobs just as they always have, so small business can begin to grow again.
- Remove unnecessary government regulations from small businesses. Small businesses spend 67% more per employee on tax compliance than big businesses do. Sarbanes-Oxley was established to avoid another Enron—it also crippled the growth of many small businesses.
- Offer incentives to start and grow small businesses. Small businesses hire 40 percent of high tech workers (scientists, engineers, computer workers), so why not encourage more small businesses.
Letting the federal government control all banking will only lengthen the recession…if not drive our economy into depression. Local and regional banks are what sustain the growth of small businesses…the same small businesses that will lead the U.S. out of its financial crisis. Let us not allow the government to see problems where none existed—they always come in and, “…hunt mice with a cannon.”
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