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Focus on Small Businesses for Economic Recovery

By: Kari English

There has been a lot of media coverage of how this recession is affecting consumers, mostly focusing on higher unemployment numbers, decreased consumer spending and increased foreclosure rates. But how is this recession affecting small businesses? I know it is having an impact because when I drive down the main street of my little Kansas City suburb I see several dark, empty storefronts that didnít used to be that way. So I did some research and here is what I found: The number of loans the Small Business Administration backed though its main program declined 57 percent in the first quarter of 2009. And 55 percent of bankers indicated weaker demand from small firms in the second quarter of 2009, according to the Federal Reserveís July 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices.

I also found that the general consensus seems to be that small business growth is a big factor in leading the country out of this recession. According to the SBA, small businesses create more than half of the nonfarm private gross domes¨tic product; they pay 44 percent of total U.S. private payroll; and small businesses employ just over half of U.S. workers.

Unfortunately, in this recession, small business growth has not taken off yet. Many claim that small businesses arenít growing because banks arenít lending. There are various opinions on why that is. Some believe it is because of a lack of capital to lend; or that the problem is a lack of crediworthiness and lack of demand. Others believe small-business lender CIT going bankrupt is partly to blame.

No matter what the cause, lending to small businesses has declined. The Federal Reserveís senior loan officer survey substantiates that: ďstandards on C&I loans to small firms were reported as having been tightened by a net fraction of about 35 percent of domestic respondents.Ē However, the Fedís survey also says that this 35 percent is down from more than 40 percent in April and down from 70 percent in January. So banks are increasing lending, just slowly ó too slowly in some peopleís opinions.

To learn more about the affects of this recession on small businesses and what small businesses need to lead the country out of this recession, click the links below.

Effects of Recession on Small Business Banking

Small Business Lending

Kari English is associate editor of BankNews.

Copyright © January 2010 BankNews Publications