Getting Credit Harder For Small Businesses

Getting Credit Harder For Small Businesses

September 15 will mark the fifth anniversary of the bankruptcy of Lehman Brothers, a key event marking the financial crisis of 2008. Small business loans were not the cause of the financial downfall, but regulators response to the crisis has made small business credit more difficult to obtain then and now.

Banks tightened lending standards in response to new regulatory pressure. Lenders reduced loans to marginal borrowers–some of whom would have obtained credit under pre-crisis standards, reports

In fact, the number and value of small loans has fallen significantly in the past five years. According to a Federal Deposit Insurance Corporation Report, data shows that number of loans for up to$1 million declined by 27% from June 2008 to June 2013

Moreover, roughly 25% of entrepreneurs responding to the Wells Fargo/Gallup Small Business Index survey for the third quarter of 2013, stated that obtaining credit was difficult over the past 12 months and 22% said it was easy, whereas in the third quarter of 2008, respondents who stated it was difficult or easy were 14% and 41%, respectively.

According to data from the Federal Reserve, four-fifths of small business owners have a personal or business credit card used for business purposes. New restrictions on credit-card issuers that were meant to protect consumers also have made it harder for small business owners to tap credit-card financing.