The Federal Reserve reports that for the first time since 2008, banks have increased credit for three consecutive months, July, August, and September of 2010. This is welcome news for the entrepreneur hoping to get a small business loan.
Mark Vitner, a senior economist at Wells Fargo says, “We are likely to see bank lending increase, but at a very modest pace. The recovery will be very slow. We have a long road back.” This is still welcome news, though, because one of the hindrances to small business formation has been the lack of available capital.
The cycle works something like this: A small business owner constructs his or her dream of a new business. With the help of a business registration service, they file the appropriate permit and licensure paperwork with their state’s secretary of state and begin to raise capital. Most small businesses aren’t well enough established to seek out private funding so often, they go to a bank attempting to qualify for a small business loan.
Banks are in a cycle of their own. Since the credit crisis of 2008, banks have been much less willing to lend to those who pose any type of risk. In a tough economic environment, a small business faces often times significant headwinds which make banks weary of lending. This is what has caused the reported credit freeze. The country needs business growth to stimulate the economy yet businesses can’t grow without more capital.
The Federal Reserve lowered the federal funds rate to nearly 0% to encourage banks to lend but until now, this hasn’t enticed banks to lend more than they previously were but now, the new data shows that finally, the actions taken by the Federal Reserve are finding their way to Main Street where they can assist small business startups who need funding to open their doors.
If you are looking for funding, there are sources that can assist you. However, you must do your homework first by building business credit. Then, contact your community bank and apply for a loan. With money flowing more freely now, what used to be a letter of rejection may turn in to an acceptance letter. Second, contact the United States Small Business Administration and find an SBA sponsored lending institution in your area. The SBA backstops loans which makes the bank feel more secure in lending.
While the economy continues to be a challenge for small businesses, the fact that banks are lending more money is a welcome sign for those who have a dream of owning a business.