The myth of credit for small businesses
Is lack of access to credit hurting small businesses?
A pile of MasterCard and VISA credit cards are displayed in this file photo. Is the difficulty of accessing credit detrimental to small businesses?
Jochen Krause / AP / File
There is a myth that a lack of access to credit is what is holding back small businesses in our economy. Washington keeps trying to enact policies to increase the pool of funding available to loan to small businesses and to encourage banks to lend to smaller firms. But supply of funding is not the problem -- it is demand.
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Jeff is the Jack C. Massey Chair in Entrepreneurship and Director of the Center for Entrepreneurship at Belmont University in Nashville, Tenn.
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I participated in a conference call with Denny Dennis of the NFIB this morning that offered some information that showed the fallacy of the so-called small business credit problem from a new report recently released by NFIB.
His data shows that recent small business loan approval is actually up in 2010 when compared to 2009, but that demand for credit is still low. Small businesses do not want -- or I would argue need -- more debt right now.
Some interesting findings include:
- Those who did not seek debt, were actually stronger financially than those who did seek new debt financing.
- Most small business loans are tied to real estate (both business and personal), so the real estate crash has diminished the ability and presumably willingness to borrow more money.
- Since sales are weak, business owners cannot generate the additional cash flow to cover new loans.
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