Here Comes Good News For Credit-Starved Small Businesses

One of the biggest challenges facing small businesses today is the availability of credit.

Various surveys have confirmed that while banks have tentatively become more willing to extend credit, the purse strings are mainly only opened for large businesses. Even as recently as the latest Federal Reserve Senior Loan Officers survey, banks have confirmed that they're still tightening credit for small companies.

The effects of this on the economy are clear. Without credit for small businesses, job growth remains a pipe dream. New investment will shrink. Large businesses will only expand their market share.

Nobody, least of all the current administration, wants this state of affairs. It's for this reason, that President Obama announced during his State of the Union a plan to divert money from TARP recipients to local and community banks -- which in theory will be more likely to extend credit to small businesses.

Also, along a similar theme, the Federal Reserve, on February 5th, issued a statement to banks urging them to get much more serious about lending to small businesses. The Fed (which is the bank's chief regulator) notes its desire to remove any regulatory impediments to small business lending, and it encourages banks to take a broad look at the creditworthiness of the borrower (including a detailed

examination of the borrower's cash flow) in the hopes of making a loan available.

This is encouraging.

Not so encouraging (yet) is the fact that the President hasn't really provided any details of his $30 billion plan. It's one thing to say you're providing small and community banks $30 billion, but it's another thing to design a program that actually spurs lending.

That being said, if you are a small business, it's definitely worth pursuing the community bank route. A recent Small Business Association "chat" confirmed that the

government agency has regional specialists who will help borrowers determine who exactly qualify as community banks. This is a good avenue.