Credit markets have shrunk a great deal, and many banks are wary to lend money into small business loans. As a reaction to this, the Obama administration has increased the loan guarantee of SBA loans to small businesses. However, is this a good choice for the economy, or not? We’ll discuss some of the factors involved, in today’s article.
Although a lack of available credit may have created some demand for loans, the main issue is that many small business owners simply aren’t borrowing. They aren’t expanding their companies, they are cutting costs and employees wherever possible, and they typically don’t need or want additional funds. The extra cost of borrowing money, in terms of interest, makes this proposition even less attractive to most borrowers. The market for small business loans has shrunk in general, not just from lack of credit.
This brings us to the next point—Why has the market shrunk in the first place? This is mostly because a large percentage of business owners were defaulting on the loans they already had. Small business loans furnished by the SBA hit double-digit default rates in 2009 and 2010. 2011 has only shown slight gains.
Although the goal of increasing funding to small businesses may be well meaning, it is certainly not without its issues. It has been brought into question whether this is an appropriate use of stimulus funds, or whether there might be more fundamental issues to be tackled first. There are many ways of seeing this issue, and no single opinion is right.
For more information, go to Small Business Loans at http://www.unsecuredbizloan.com/small-business-loans/