Credit Vise Still Tightening on Small Businesses

Credit Vise Still Tightening on Small Businesses

Monday, November 02,2009 08:29 PM

Many small and midsize American businesses are still struggling to secure bank loans, impeding their expansion plans and constraining overall economic growth, even as the country tentatively rises from its recessionary depths.

Most banks expect their lending standards to remain tighter than the levels of the last decade until at least the middle of 2010, according to a survey of senior loan officers conducted by the Federal Reserve Board. The enduring credit squeeze appears to reflect an aversion to risk among lenders confronting great uncertainty about the economy rather than any lingering effects of the panic that gripped financial markets last fall, after the collapse of the investment banking giant Lehman Brothers.

Bankers worry about the extent of losses on credit card businesses as high unemployment sends cardholders into trouble. They are also reckoning with anticipated failures in commercial real estate. Until the scope of these losses is known, many lenders are inclined to hang on to their dollars rather than risk them on loans to businesses in a weak economy, say economists and financial industry executives.

"The banks are just deathly afraid," said Sam Thacker, a partner at Business Finance Solutions in Austin, Tex., which helps small businesses line up financing. "I don't see commercial banks coming back to the market anytime soon." In the long view, tighter loan standards seem healthy after a terrible crisis attributed in part to years of recklessly lenient lending.

But some economists worry that bankers have overshot the boundaries of a healthy reaction, as even strong companies are finding it difficult to borrow.

Read the rest at: http://www.nytimes.com/2009/10/13/business/smallbusiness/13lending.html?_r=1&scp=1&sq=goodman%20small&st=cse