Pile of Cash
Small business loans may soon be available, but to whom? CC by AMagill/Flickr

The U.S. Senate is about to vote on a bill that is supposed to make small business loans more available. This bill will help create $300 billion in available capital to help small businesses. Banks in the lending business, though, are saying the extra cash won’t actually create more small business loans. Lenders are saying that creditworthy small businesses are just in very short supply.

Lending for small businesses

If the Senate passes this bill, $30 billion will be “injected” into community banks. That money is intended to create $300 billion in small business loans. This emergency loan is intended to increase the available credit for small businesses and create jobs. Only lenders that have less than $10 billion in assets would qualify for this money. This bill is supported by both the National Federation of Independent Business and the American Bankers Association.

Lack of creditworthy small businesses

Many of the banks that are a target for this small business lending bill are saying it will not help. Banks are skittish about lending to people or businesses with bad credit, because that is what caused the recession in the first place. There is a lot of demand for loans, but mostly from borrowers without good credit. Furthermore, until they are seeing sustainable profitability, many businesses don’t want to borrow any money.

Financing small business means risk of default

There are several indicators that small businesses are in need of more than just loans. Loans through the Small Business Administration are defaulting at 7 percent already this year. The Bank of America has reported that twice that many loans have been “charged off” – assumed uncollectable. A credit card firm that specializes in small businesses ended up going into bankruptcy after more than 50 percent of its cards went into default in 2009.

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