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The Real Reason Small Business Loans Are Gone


It's not the banks' fault.

In what should be no surprise, banks are cutting back on small business loans. Please consider CNN Money's Small business loans: $10 billion evaporates.

Eight months after President Obama began prodding the nation's banks to increase their small business lending, the loan numbers continue to move in the opposite direction.

The 22 banks that got the most help from the Treasury's bailout programs cut their small business loan balances by a collective $10.5 billion over the past six months, according to a government report released Monday.

Three of the 22 banks make no small business loans at all. Of the remaining 19 banks, 15 have reduced their small business loan balance since April.

Credit crunch: Obama administration officials, including Treasury Secretary Tim Geithner and Small Business Administration head Karen Mills, will host a forum Wednesday in Washington to discuss the lending challenges small businesses face. Bankers, members of Congress, and a selection of small business owners will participate.

While credit conditions have improved in some parts of the financial system, lending remains very tight for businesses that rely on banks for their financing, Federal Reserve Chairman Ben Bernanke acknowledged on Monday.

The article details the plight of Frank and Ingrid Brown, who own retail art and gift shops and want to expand.

They applied for $35,000 in small business loans and "after filling out mountains of paperwork, the couple got a loan for $14,000 -- less than half the $35,000 they applied for." Frank complained "By the time you get through everything, it is not even worth it."

They also applied for a $50,000 credit line and were only approved for $10,000.

So what is it they need, $35,000, $50,000, or $85,000? If I was a bank, I'd be extremely nervous about making loans to expand small retail gift shops in this environment, especially when they want a large line of credit to go along with it.

Bear in mind we don't have all the facts, nor does the original article. But these tales of woe are useless without the facts. I see no reason to believe this couple is a good business risk. Perhaps they are, perhaps they aren't, but my inclination is to side with the banks.

Pump Runs Dry

Flashback to March 16, 2009, when CNN Money published Obama: Pumping money into small biz.

President Obama vowed Monday to ease the financial plight of the nation's small businesses, which have been hit hard by the recession.

"Small businesses are the heart of the American economy," Obama said in a speech at the White House. "They're responsible for half of all private sector jobs, and they created roughly 70% of all new jobs in the past decade. They're not only job generators, they're at the heart of the American Dream."

Many small businesses, drowning from dried-up coffers and unpaid bills, are having a tough time getting loans from lenders.

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