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Thursday, June 9, 2011

Meeting the Credit Needs of Small Business

Last week, the House Committee on Small Business held a hearing on small business access to credit. As part of its testimony, Gallup presented the results of its most recent Wells Fargo/Gallup Small Business Index survey. Essentially, slightly fewer small business owners say credit is difficult to get now than in recent years -- but three times as many say credit access is difficult compared with the number who held this view prior to the recession in 2007.

One of the reasons small businesses are having difficulty getting credit has to do with the U.S. housing situation. In the past, many small business owners used their homes and other real estate to secure their business loans and lines. The collapse of home values has virtually ended this practice -- and for many small business owners eliminated their collateral -- thus making it much more difficult to obtain credit. Therefore, returning housing to price stability or better is a key to returning easier credit to the nation's small businesses.

Of course, increased revenues and cash flow would also help. However, the Index poll also showed small business owner optimism declined in April -- something of a precursor of recent data confirming the current economic slowdown -- and reflecting reduced owner future business activity expectations in the months ahead.

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