A Christmas wish for small business: More credit, please
It’s no secret that small businesses across America, as of late, have had to adapt or die. They have been tightening-up operations, becoming leaner and more efficient, awaiting the day when sales take off.
But businesses can only get so lean before austerity becomes unsustainable. Their cost-cutting measures will positively affect the bottom line initially, but when demand picks up and the opportunity to capture new markets, expand and innovate eventually presents itself – these bare-bones companies will be left in the dust by larger firms who have fared better in the economic downturn.
The larger companies have one essential thing that smaller ones don’t at this stage in the game: access to capital.
Interest rates are near all-time lows and banks are still loaning larger businesses money. But smaller businesses aren’t getting what they need. And this trend is killing them, because access to affordable credit, second only to revenue generation, is an essential concern for any fiscally sound company.
Banks aren’t lending to small businesses for a variety of reasons, and many of them have nothing whatsoever to do with those small businesses’ credit worthiness. Troubles with the banking sector, policies that pay interest on required deposits, and new regulations have led banks to retain more assets and lend out less. These issues warrant much deeper analysis, but suffice it to say – small businesses have paid a price for the troubles that have plagued the banking sector. Simply because a bank has a problem on its own balance sheet does not mean there aren’t creditworthy, healthy small enterprises out there, worthy of being financed.
So if banks won’t lend to small businesses, what is the remedy? Raise the cap on credit union member business lending and allow them to offer their financially fit business members the loans they desperately need. (This cap itself warrants much further explication – nerdwallet.com provides a pretty balanced description of the current debate here.)
The bottom line is that credit unions are actually willing and able to lend to small businesses. They weathered the economic down-turn better than banks did and have a better historical track record when it comes to recouping business loans. In many cases, furthermore, by their very nature—limited fields of membership–they are closer to the customers they serve. This allows them to see the overall health of those customers better than larger banks.
Whatever the reason, there are healthy well-capitalized credit unions champing at the bit to lend to healthy, undercapitalized small businesses. If we want to truly help small businesses in America, we should do everything we can to expand credit union member business lending.
