For Small Business, Slow Gains In Credit

WASHINGTON—The worst may be over for small businesses struggling to obtain credit, but this important corner of the financial system doesn't show signs of recovering very quickly, according to officials and business leaders who gathered at the Federal Reserve for a one-day conference.
"Overall, the survey data seem to suggest that current economic conditions for small businesses, though still quite challenging, are less dire than they were in 2009," said Robin Prager, an assistant research director at the Fed, at the forum on small-business lending.

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Federal Reserve Chairman Ben Bernanke sits with participants Monday after speaking at forum on small-business financing.

Ms. Prager, citing the Fed's Senior Loan Officer Opinion Survey, said weak demand from businesses and banks' still-stingy credit rules made lending tight. But the most recent April survey showed that bank lending standards for small businesses stopped tightening in the first quarter, after tightening sharply throughout 2008 and 2009.

Small business owners and the groups that represent them said they haven't seen lenders becoming more lenient. "It still feels very depressed," said Leslie H. Benoliel, executive director of the Philadelphia Development Partnership, one of the area's largest providers of micro-enterprise business advice.
In his opening remarks, Fed Chairman Ben Bernanke acknowledged the continuing depressed state of the lending market. "The formation and growth of small businesses depend critically on access to credit. Unfortunately, those businesses report that credit conditions remain very difficult."
The forum is the culmination of a fact-finding mission the Fed began in February to identify how to improve credit for small firms. Fed officials have hosted more than 40 meetings around the country with small businesses, bankers and community leaders to identify obstacles to obtaining credit. One major problem has been a lack of data that could help determine whether the problem is based on lack of demand for credit, tight supply or some combination of the two.
While major banks eased loan conditions for big firms during the first quarter, lending standards remained tight among the local banks on which small businesses rely, according to the quarterly Fed survey. Similarly, a survey by the National Federation of Independent Business found that the proportion of firms reporting tighter credit conditions over the past three months remained "extremely elevated," Mr. Bernanke said.
He cited data showing that loans outstanding to small businesses have declined to less than $670 billion in the first quarter of 2010 from about $710 billion in the second quarter of 2008.

"We fell into a 100-foot well, and we just stopped falling," said Zoltan Acs, an economist with the Small Business Administration, during a panel at the forum. "How do we get out? I guess the recession is over, but there's a lot of damage to the economy."

Mr. Bernanke noted that small businesses are essential to job creation, saying that data show that small firms employ roughly one-half of all Americans and account for about 60% of job creation. "Making credit accessible to sound small businesses is crucial to our economic recovery, and so should be front and center among our current policy challenges," he said.
Some lenders argued the current lending standards are a return to more normal conditions following a period of laxity. "I keep hearing remarks that credit standards have tightened, and I don't believe that," said forum panelist Jack Hopkins, president and chief executive of CorTrust Bank N.A. and director of the Independent Community Bankers of America. "I need to make loans to survive, to make money."
Other lenders at the conference said they were ready and willing to work with borrowers, but that some small firms were sitting on cash and afraid to invest in an uncertain economy.
"That comment floored me," said Selma Taylor, executive director of California Resources and Training, a group that advises small business. "The market I'm dealing with, people don't come to me when they're sitting on cash."