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in Cash Concerns by annearf, 02-12-10 04:05

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Oct 28

Federal Reserve: Demand for small-business loans hasn't dropped

Posted by annearf in small businesslendingFederal Reserve of New YorkCreditCash


The contraction in lending to small companies is a result of deteriorating revenues, not a slowdown in demand.

That, at least, is the conclusion of a new report from the Federal Reserve Bank of New York. It studied 426 small businesses last summer and found that demand for loans actually has increased, but banks have been turning more companies down. And that, of course, flies in the face of other research that shows the lack of lending is due to fewer businesses seeking loans.

The report found that 59 percent of respondents applied for credit during the first half of 2010, compared with estimates of 40 percent from pre-recession national surveys. Also of those companies that applied for credit, about half received it. At the same time, however, more than three-quarters of applicants got only "some" or "none" of the credit they wanted. 

So more asking, less receiving.

How come? It's a matter of declining sales. Sixty-six percent of respondents reported revenue drops over the past two years. And the lucky receivers of loans were businesses with strong cash flow and cash reserves, along with healthy sales and retained business earnings. 

The results also provide evidence that the $30 billion lending small business lending bill recently signed by President Obama could do some real good.

In addition, the report discusses the so-called second look programs many banks have started, whereby applicants who were turned down are reevaluated, sometimes after receiving technical help with the paperwork. According to the report, such efforts probably would help companies in business for more than five years, would assist more than half of all applicants denied credit, and reduce the overall denial rate by about 13 percentage points. 

That sounds pretty promising.











Comments (1)Add Comment
Stephen P. Kramer
written by Stephen P. Kramer, October 28, 2010
Further proof that those who need the money most (those with sluggish/non-existent sales) have the hardest time getting loans. Further, most small businesses are waiting to see if their futures are going to be torpedoed by government intervention. They don't want loans-they want to be left alone. Throwing $30 billion at us is silly. Leave us alone.

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