Banks Seek Low-Risk Business Loan Opportunities

Economists from the Small Business Administration (SBA) report banks are easing lending standards for the first time since 2008, but restrictions appear to remain in place for small …

Economists from the Small Business Administration (SBA) report banks are easing lending standards for the first time since 2008, but restrictions appear to remain in place for small businesses banks judge to be too risky. The problem, says SBA economist Victoria Williams, is that the ideal low-risk small-business borrower does not need a loan, so banks of all sizes continue to sit on capital that could be used to stimulate growth in the small-business sector. Williams believes it is caused by an overall weakening of the economy that leaves lenders lacking in confidence that any but the most robust businesses will be able to generate a profit during lean times. For more on this continue reading the following article from Blue MauMau.

Victoria Williams, economist for the Small Business Administration, explains to Blue MauMau why small business lending is down.  She says that for the first time in years, small business lending is actually beginning to stabilize. Unfortunately, the current amount of lending is at a much slower pace than expected. "Banks are just now beginning to ease their lending standards for small businesses for the first time since 2008," says Williams. "Banks are seeing lower demand for loans currently from small businesses, even though they are prepared to lend. This basically means that we are facing a situation where banks have funds to loan if they see a business is profitable."

The SBA economist adds that the bottleneck is because banks want to lend to small firms that they see as financially strong, but strong firms do not want to or need to borrow. "Indeed many [lenders] are sitting on cash reserves just as their large firm counterparts are," states the small business economist. "Meanwhile, small firms seeking bank loans are not seen by banks as desirable risks in the current economic climate. Banks are therefore not making loans to them."

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Williams thinks the important factor that links these two observations together is an overall weak economy, which is causing financially healthy firms to put the brakes on investing and expanding with the sizable capital they have been able to accumulate. "This creates conditions wherein firms that seek bank funding are seen as overly risky because current economic conditions are cutting into sales and profits," states Williams.

In other words, small business lenders are experiencing the phenomenon in which the girl who asks to go to the ball isn’t interesting because she’s obviously desperate. And the one with whom you want to go is incredibly cute because she’s smart enough to ignore you.

This article was republished with permission from Blue MauMau.

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