In his recent State of the Union address, President Obama urged Congress to help “tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow.”
This raises the question: Is access to credit still one of the biggest issues facing entrepreneurs and small business owners? The answer is that the picture appears to be improving.
Citibank recently reported a 30 percent jump in lending to small business. J.P. Morgan Chase said it boosted lending to small businesses (which it defined as businesses with less than $20 million in annual sales) by 52 percent in 2011.
And Biz2Credit said its most recent monthly analysis of loan applications that ran through its online lending platform showed approval rates by credit unions, micro lenders and other alternative lenders topped 62 percent in December, compared with about 49 percent in January 2011.
“With most major banks done reporting fourth-quarter earnings, one trend is clear: For the first time in a while, loan growth is back,” according to a Motley Fool report.
Tim McPeak, Sageworks’ director of financial markets advisory services, said the tide may be starting to turn. “There are borrowers that are healthy — that are now looking to expand as opposed to the borrower who was approaching their bank [in recent years] just because they were trying to stay in business,” McPeak said. “And bankers always want to lend; that’s how they make money.”
According to Paul Kasriel, chief economist at Northern Trust, the U.S. economic recovery hinges on banks getting money flowing to businesses again.
“The good news is that we don’t have to worry about the fact that our federal legislators can’t seem to get anything done,” Kasriel said, “because it doesn’t matter what they do. It’s all about the banks.”
And he thinks banks will continue to lend more this year, which will “get the ball rolling again.”
Even so, McPeak and others say it’s still not an easy-credit environment. “It’s going to take a healthy balance sheet to borrow,” McPeak said.
There can be no doubt that there are significant events and factors which may throw a wrench at businesses’ prospects for growth — namely, the deficit and tax policy. But apparently the lending environment is improving, which bodes well for businesses that need capital.
Mary Ellen Biery is a research specialist at Sageworks, Inc., a Raleigh, N.C.-based financial information company that collects and analyzes data on the performance of privately held companies.