Tags: whitney | credit | collapse

Whitney: Small Business Credit Collapsing

Tuesday, 13 Oct 2009 02:10 PM

By Gene J. Koprowski

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Credit continues to contract, and smaller firms and many consumers are suffering, notes bank analyst Meredith Whitney.

Whitney is best know for predicting the banking collapse that has enveloped Wall Street since late 2007.

“With the exception of large-cap companies, smaller-sized businesses are struggling to raise capital and the wider implications for the economy are bearish.

“Small companies employ 50 percent of the U.S. workforce and contribute 38 percent to GDP, or Gross Domestic Product,” Whitney says, reports a blog from the Sovereign Society.

"Equally worrisome are the trends in small-business credit, which has contracted at one of the fastest paces of any lending category. Small business loans are hard to find and credit-card lines (a critical funding source to small businesses) have been cut by 25 percent since last year," Whitney says.

She adds that the small business credit situation is so bleak that it may sideline the economic recovery during the second half of 2009 and into next year.

"I believe that we are only in the early stages of the second half of this credit cycle. I expect another $1.5 trillion of credit-card lines to be removed from the system by the end of 2010,” said Whitney.

Confirming the global credit contraction is a report in The Wall Street Journal.

The story indicates that, in an attempt to limit risk in its credit-card portfolio, Royal Bank of Scotland has limited credit cards to people who have a checking account or open an account with the bank.

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