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Financing woes plague small businesses Print E-mail
Wednesday, 13 January 2010

By Matthew Quinn

A new survey out Wednesday finds that small businesses aren't getting enough credit to hire more workers.

CareerBuilder found that 34 percent of the nearly 1,500 small businesses surveyed said they don't think or are unsure if their companies will be able to access the credit they need in 2010.

That will have a real impact on the economic recovery if you believe we aren't actually in a recovery unless the economy is adding jobs, as 15 percent of respondents said that an inability to access credit this year will prevent them from adding headcount.

A full 17 percent of small businesses reported not being able to access the credit needed to support their businesses in 2009, and more than one-quarter of those companies said they were unable to add employees. On a positive note, of those companies who were able to access credit last year, 73 percent were able to hire new staff.

Credit remains tight, no doubt. The Federal Reserve's Senior Loan Officer Survey has consistently shown banks tightened their lending standards to small businesses throughout the credit crisis. But even as it abated, standards have not eased at all.

Indeed, in the latest Fed survey released in November, no banks reported easing lending standards to small businesses with annual sales of less than $50 million.

But one puzzling piece of this picture is that -- while small businesses complain that their financing needs aren't being met -- banks have been reporting weaker loan demand. Forty-five percent of respondents to the Fed's most recent survey reported moderately weaker demand for commercial and industrial loans for the three months ended October 2009 and just 9 percent reported stronger demand.

Even the number of banks reporting fewer inquiries about credit was far greater than those reporting increased inquiries (35 percent versus 10 percent).

So, what gives? According to the Fed, the reason most cited as "very important" for the drop in loan demand was a decrease in investment in plant or equipment.

Merging the findings of the CareerBuilder survey and the Fed data leads one to conclude that many small businesses are just holding on to survive. Worse yet, those getting by aren't thinking about expanding and many needing help just can't get it.

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