Tags: bank | lending

Report: Banks Not Making Small Business Loans

Thursday, 13 Aug 2009 12:50 PM

By Marc Davis

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Tight-fisted banks aren't doing what they're supposed to do: loan money to small businesses.

The Small Business Administration was supposed to help struggling small enterprises with emergency bridge loans to save jobs, retire debt, and buy necessities.

But the loans are only "trickling" out, according to The New York Times, and as a result small businesses are suffering greatly if not failing.

Some $255 million was allocated to the program to make about 10,000 loans of up to $35,000.

As of mid-August, however, only 1,127 loans have been granted, amounting to $36.8 million, the Times reported.

Banks which were expected to participate in the government program are not making the loans, according to Paul Merski, chief economist for the Independent Community Bankers of America.

"There's not a lot of profit motive in a $35,000 loan stretched over six years," Merski told the newspaper.

Small businesses may be suffering, but many banks now fat with government cash are expected to prosper in the months ahead as the economy continues to recover.

Curtis A. Mewbourne, a managing director at bond giant Pimco, advocates buying investment-grade bonds from large banks and financial institutions, according to Bloomberg News.

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