Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Bloomberg Customers

Bernanke: Credit Still Tight for Small Business

Posted by: John Tozzi on November 17, 2009

The credit crunch persists for small firms, and that could drag on job growth, Fed Chairman Ben Bernanke told the Economic Club of New York in a speech Monday. Small businesses’ continued trouble borrowing from banks contrasts with big companies that borrow in the capital markets, which Bernanke said have returned to normal.

The Fed chairman’s wide-ranging talk described an economy that had averted disaster but still faced two big challenges: tight credit for small and mid-size firms and households, and high unemployment.

Here are some excerpts of Bernanke on small business:

In particular, borrowers with access to public equity and bond markets, including most large firms, now generally are able to obtain credit without great difficulty. Other borrowers, such as state and local governments, have experienced improvement in their credit access as well.

However, access to credit remains strained for borrowers who are particularly dependent on banks, such as households and small businesses. Bank lending has contracted sharply this year, and the Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices shows that banks continue to tighten the terms on which they extend credit for most kinds of loans—although recently the pace of tightening has slowed somewhat. … For their part, many small businesses have seen their bank credit lines reduced or eliminated, or they have been able to obtain credit only on significantly more restrictive terms. The fraction of small businesses reporting difficulty in obtaining credit is near a record high, and many of these businesses expect credit conditions to tighten further.

That constriction of bank lending could translate to weak job growth in the recovery, Bernanke said.

In addition, difficulties in obtaining credit could hinder the expansion of small and medium-sized businesses and prevent the formation of new businesses. Because smaller businesses account for a significant portion of net employment gains during recoveries, limited credit could hinder job growth.


Banks’ reluctance to lend will limit the ability of some businesses to expand and hire. I expect this situation to normalize gradually, as improving economic conditions strengthen bank balance sheets and reduce uncertainty; the fallout for banks from commercial real estate could slow that progress, however. Jobs are likely to remain scarce for some time, keeping households cautious about spending. As the recovery becomes established, however, payrolls should begin to grow again, at a pace that increases over time. Nevertheless, as net gains of roughly 100,000 jobs per month are needed just to absorb new entrants to the labor force, the unemployment rate likely will decline only slowly if economic growth remains moderate, as I expect.

In terms of access to credit, small businesses and big businesses are again facing two different recoveries. (Hat tip to WSJ’s Real Time Economics blog.)

Reader Comments


November 17, 2009 09:40 PM

Gee Ben didn't you hear of the great program that Goldman has, besides the CDF coverage by the US Govt and the $10 billion in short term credit from the US Govt and the billions in bonuses they just paid they will loan $500 million to small businesses, thanks for the table scraps. While those of us WITH real small businesses are firing people due to collapsing credit lines.
I want to be a proactive/positive part of the solution, but this is just getting beyond silly!

Carol Cross

November 18, 2009 01:18 PM

This is a Catch 22 that the policy makers have created. Goldman and other are interested in saving the secondary market in which 90% SBA guarantees can be sold as bonds to institutional investors. The Securitisation of Receivables on IP has been a lucrative market and they want to continue to subsidize BIG Franchisors in our economy to save this product.

The SBA has been subsidizing franchising in the economy for many years with the help of ineffective regulation of franchising by the FTC.

Certainly, the FTC and the SBA are aware of the grim statistics concerning the survival of ALL small businesses, independent or franchised, and yet the policy makers want to continue to subsidize the franchisors, at the expense of thousands of franchisees who will lose everything they have when their collateral is collected by the SBA after the SBA pays out the loan guarantees to the banks.

As Professor Scott Shane has indicated, the "entrepreneurial sector" -- the small business man -- the franchisee -- is not, perhaps, the solution to the great problem of jobs in our economy and policy makers are perhaps not getting the real statistics on failure of small business loans.

Bob Rodi

November 19, 2009 11:33 AM

Credit is tight, no doubt but there is always fallout like this when the paradigm shifts from a "volume" driven mentality to an "operational" mentality. Small business lending, specifically franchise lending, is much more about risk management that is is about credit adjudication. Most serious applicants have and above average credit profile or they couldn't make it past the screening process of most credible franchise systems. Nevertheless you still had the government\SBA, in a politically correct, redistributive mood, that gave their guarantee willingly and liberally. Many of us, who did and still do conventional financing, using private capital, had to adhere to underwriting standards that insured sustainable portfolio performance, even in a downturn. One's attitude toward underwriting is vastly different when there is long term recourse involved as opposed to a government guarantee or securitizing billions of dollars worth of paper in the securitization markets. Case in point is CIT. A lot of franchisors were in love with them and their liberal underwriting policy. Unfortunately these folks were "trained" to expect this from any lender, and many current discussions with franchisees and franchisors are centered on unrealistic expectations of rate, terms and risk appetite. It is difficult to fault these folks however since they did not understand that their transaction were being unloaded to securitization conduits with virtually unlimited appetites. Lastly, quality franchise systems are beginning to realize that they are going to have to participate in the risk equation with lenders, especially with respect to start up financing. These types of "risk sharing" programs may be the most viable replacement for the declining participation of the SBA. At any rate, there are still companies who will loan money to viable franchisees from solid performing franchise systems. The excess of the past few years however, will not return any time soon.

Post a comment



What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

BW Mall - Sponsored Links

Buy a link now!