Root Cause of Banks Lending to Small Businesses Decline
With positive macoeconomic signals many experts believed that small business financing would begin to pick up as small business owners became more comfortable about their future. Alas, retail banks have continued to turn away small businesses especially those with annual revenues less then $2 million. The amount lent during any transaction has declined 19 percent on average according to the Federal Deposit Insurance Corporation (FDIC) statistics just made public.
Effect of Loose Mortgage Lending On Small Business Loans
Many small business owners prior to 2008 used home equity to finance their business and as a source of working capital. This is no longer an option for 99% of business owners as banks have introduced stringent mortgage underwriting rules in the wake of the financial crisis. The Federal Reserve in pushing these rules has made sure that better loans are underwritten with less risk of default and collateral damage to the economy. A small business owner planning on using home equity for short term business expenses would be wise to explore other business financing options as they will find it difficult to get credit.