What Credit Crunch?
News out this morning is that banks now have money to lend, so is a dearth of borrowers the new problem? According to a Herald Tribune article, government bailout dollars have indeed loosened the credit markets, and many banks say they are ready to lend, but who wants to borrow? Chairman of Liberty Bell Bank in Cherry Hill, NJ, William Dunkelberg, said, “It’s not us saying we won’t lend money—it’s borrowers saying they don’t want it.”
Small business loans declined 30% in 2008, according to the SBA, and the dollar amount of the loans decreased by 13%. And while this plunge is due in part to tighter credit availability this year, it seems there may now be a larger problem related to consumer spending. It appears that small businesses are worried about a continued drop in sales, and they have therefore stopped investing in expansion at this time. With cash flow so uncertain, are they afraid of their ability to pay back loans?
According to a recent Reuters article, the National Federation of Independent Business said the Index of Small Business Optimism for October fell 5.4 points to 87.5, the third lowest reading in the survey’s history. This decline reflects real recession, of course, but there is also some good news coming from small business owners. In another Reuters article published a month ago, a recent Small Business Economic Trends report showed a significant increase in the number of small business owners who expected general improvement over the next six months.
It is this sort of optimism from small businesses and start-ups that will be crucial to reversing the trend in confidence that is hurting the current economy. Small businesses create the vast majority of jobs and contribute greatly to GDP, and this country depends on them to innovate and spur growth. Hopefully, with some helpful legislation behind it, the optimistic spirit that generally guides these entrepreneurs will help lead us all down the path to economic recovery.
