The growing issue of the lack of lending to small businesses by banks and the impact it is having on the economy was took up by Federal Reserve Chairman Ben Bernanke. When compared to 2008, the first quarter of 2010 contracted $40 billion lending to the small businesses. In 2009, only a third to half of small businesses were able to get a loan or line of credit.
Why Banks are not offering credit?
Lack of collateral and a renewed sense of risk aversion are the two reasons pointed by banks for the drop in real loans. Increase in capital reserve requirements have affected banks’ abilities.
The CARD act passed last year, offers consumers in the form of penalty fees and APR changes, as the small business credit cards are completely exempt from even the minor protections.
The banks have decreased small business loans, but they have opened the back door to all the businesses that need money in the form of a credit card loan. According to a Fed report, the business is booming. Around 75 percent of all applicants were approved for credit card loan by the same banks who denied their loan applications earlier.
According to Fed, 80 percent of the small business credit card users pay back their cards every month.
Credit Cards Increased Job Opportunities
According to American Bankers Association, the credit card usage by small business owners has helped to create 1.6 million jobs throughout the economy over many years.
The ABA study showed that the credit cards did the same as a safer product, like a small business loan would have done. It enabled businesses to invest in order to take care of more customers, taking more orders, to place bigger orders themselves, and hiring new employees.
