Why Small Business Lending Remains Dry 3 Years After Credit Crisis Began

Why Small Business Lending Remains Dry 3 Years After Credit Crisis Began

Since the credit crunch began (all the way back in 2007?!), it’s been a she-said, he-said war of words between entrepreneurs and banks.

Entrepreneurs say they can’t get funding.  Banks say that they are lending, but there’s nobody credit worthy enough to lend to.

Today, the Wall Street Journal’s Small Business Section reports that this lack of credit flow is still ongoing:

The economy is on the mend. The government has launched a boatload of programs to get small businesses financing. President Barack Obama has urged banks to give the companies a “third and fourth look” before rejecting them for loans.

Yet entrepreneurs are still struggling to land credit. Only half of small businesses that tried to borrow last year got all or most of what they needed, according to a survey by the National Federation of Independent Business. In the mid-2000s, 90% of businesses said they got the loans they needed.

What’s going on here? Why is the credit crunch alive and well when it comes to small businesses?

The article actually heads downhill from here – citing potential government fixes to the lending problem.

Look – the government is the problem here – not the solution.  Massive fiscal deficits at the local, state, and federal levels have resulted in record issuances of public debt.  Because public debt is theoretically “safer” than private sector paper, free enterprises get crowded out of the equation.

It’s simple supply and demand.  There’s only so much demand for bonds.  If the public sector is issuing massive amounts of it, that means it’s going to be more and more of a challenge for the private sector to raise money via debt.  It’s that simple.

You want a “government fix”?  Stop spending and borrowing so much damn money.