The U.S. Senate is about to vote on a bill that is designed to make small company loans more accessible. This bill will help create $ 300 billion in accessible capital to help small businesses. Banks within the lending business, though, are saying the extra quick cash advance won’t actually create more small business loans. Businesses say that credit-worthy small company borrowers are simply in short supply.
Small business lending
$ 30 billion could be sent to community banks if the new bill in the Senate passes. The banks are expected to use this cash to seed $ 300 billion in small company loans. This cash is intended as an emergency loan for jobs and small business credit. Only banks with $ 10 billion or less in assets would qualify. This bill is supported by both the National Federation of Independent Business and also the American Bankers Association.
Lack of creditworthy small businesses
Some banks are claiming that it doesn’t matter how much cash is accessible – smaller businesses won’t benefit. Banks simply don’t want to lend to individuals or companies with poor credit, since that is how they got into trouble within the first place. The highest demand for loans, especially for smaller businesses, is from borrowers who have a bad credit score. Without sales and profitability, companies are very reluctant to take out loans.
Small Businesses facing high defaults
You will find numerous indications throughout the economy that smaller businesses need more than just credit. Loans that are guaranteed through the Small business Administration have been defaulting at a rate of almost a full 7 percent. Bank of America has reported that 14 percent of small business loans were charged off already this year. One firm that specializes in small business credit cards had to declare bankruptcy after half of its accounts went into default in 2009.
