Until it is addressed, the severe drop in loans and credit lines will hamper economic growth and job creation for years.
From BusinessWeek.com
The media is full of anecdotal reports about small businesses that had bank loans and lines of credit before the Great Recession—and now have neither. While these stories put a face on the entrepreneurs struggling to make do with less credit, they don't give a sense of the overall breadth or depth of the problem: The decline in bank credit to small businesses during the Great Recession is so large that it's unlikely to return to prerecession levels for many years.
To thaw the ongoing freeze, policymakers need to understand how much small business credit has evaporated since the Great Recession began, and why. Timid solutions won't work. The adverse effects on the small business sector's contribution to economic growth and job creation are potentially way too severe.
The Federal Financial Institutions Examination Council has the best information on small business lending by retail banks and commercial banks. Its data on millions of loans to businesses with less than $1 million in annual revenue provide a comprehensive look at what has happened since the beginning of the financial crisis. (I use this revenue ceiling as a proxy for small business because IRS statistics show that 95 percent of businesses generate less than $1 million per year in revenue.)
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