How Is the Business Credit System Evolving These Days?

Over the past several years, many small business owners have expressed frustration when it comes to being able to find reasonable financing for their companies, and have even had difficulties in getting approved when they do come across good deals. Things have been changing for the better more recently, but many experts wonder just how long it will be before this portion of the credit ecosystem returns to pre-recession norms.

Many types of lending have already returned to the kinds of credit access seen prior to the national economic downturn, and for the most part rates of delinquency and default have remained quite low, indicating more economic health. However, this is not really the case when it comes to both mortgages and small business lending. And in the case of the latter, it seems that conditions may stay difficult for some time to come, according to a report from the Wall Street Journal. While small business credit access has certainly expanded in recent years, that’s come mostly as a result of greater effort from community lenders, rather than the big banks that used to dominate the industry.

“Unfortunately, one of the inadvertent consequences of the too-big-to-fail phenomenon is that much of our credit capacity in the U.S. is concentrated now among a handful of large banks,” Ted Zoller, director of the Center for Entrepreneurial Studies at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill, and senior fellow for the Ewing Marion Kauffman Foundation, told the newspaper. “It will take several years of stable economic conditions and strong business fundamentals for these banks to come back around to offer credit facilities for growing small businesses. Any effort on the part of the government to accelerate this workout process would be most welcome by the small-business sector.”

A look at the numbers
Today, 89 percent of small business owners say that they understood the financial implications of starting a company when they did so, the report said. In all, a little more than 3 in 5 said they started their companies using their own assets and income, while 18 percent relied on bank loans. Another 19 percent reported not being able to get a loan at all.

Companies that want to improve their chances of getting approval might want to consider the benefits of finding more affordable small business insurance. Freeing up thousands of dollars per year with lower-cost liability insurance, for instance, could make them far more attractive to lenders.