Small businesses say tight credit a hindrance

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Associated Press

Posted on July 12, 2012 at 7:01 PM

Updated Thursday, Jul 12 at 7:30 PM

NEW YORK (AP) — More than 40 percent of small business owners needed money during the four years since the 2008 financial crisis, but couldn't find a bank that would lend it to them, according to a new survey.

The National Small Business Association found that 43 percent of the small business owners that it surveyed needed funds, but couldn't get financing. Banks tightened lending during the financial crisis making it hard for even companies that had good payment histories to get approved for a loan.

Fifty-three percent of the participants who couldn't get money said they weren't able to expand or grow because of a lack of funds. Nearly a third said a lack of money forced them to cut their staffs and 20 percent said they cut employee benefits. Thirty-seven percent said the inability to get money wasn't a problem or had no effect on their business.

The survey findings support other reports and anecdotal evidence that show that small businesses were having a hard time getting loans — and that tight credit has hindered their ability and desire to expand or hire.

Another consequence of lenders' reluctance to grant loans after the financial crisis was that many small businesses were forced to pay off existing lines of credit early or the amount of credit they had been granted was reduced.

Forty-two percent of the participants said their loans or lines of credit were decreased or called in early by a bank, or that a bank suggested that changes be made to a company so it could maintain a loan. In 60 percent of those cases, participants said banks were reluctant to lend because they didn't want to take on more risk. In 36 percent of the cases, banks cited greater scrutiny of their lending practices by regulators. And 30 percent said banks told them their companies were too risky.

Looking at the last year, the source of capital that small businesses turned to most frequently was a bank line of credit; 43 percent said they used those lines. Thirty-seven percent used credit cards, while 32 percent used their company earnings to meet their needs. Twenty-nine percent got bank loans, and 20 percent said they got easier payment terms from their vendors — in other words, they got more time to pay their bills. Nineteen percent got loans from friends or family.

The NSBA is a Washington, D.C.-based group that lobbies on behalf of its 65,000 small business members. It conducted the survey online among 300 of its members during May.

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