Former SBA Chief Mills: Lending to Small Businesses Still Sluggish

Friday, 08 Aug 2014 10:09 AM

By Dan Weil

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Loan availability remains a problem for small businesses, and that spells trouble for the economy, says Karen Mills, former head of the Small Business Administration.

Small businesses account for half percent of the economy's jobs.

"There is no data that definitively measures either the credit gap for small business or the impact of that gap on the economy," Mills, now a senior fellow at Harvard, writes in a working paper. "However, the information that exists paints a troubling picture."

Editor’s Note:
New Warning - Stocks on Verge of Major Collapse

A Federal Reserve survey of loan officers shows that banks have eased their lending standards for big companies much faster than for small ones since the recession.

And commercial loans with principals of $1 million or less have dropped approximately 20 percent from the years leading up to the recession, according to the FDIC, Mills notes.

"As the pace of the recovery continues to be slow, we need to ask whether the current credit environment is having a dampening effect on small business job creation, and thus, the jobs gap overall," she writes.

"Although there is no way to accurately measure the gap in this market, the evidence strongly suggests an imperfect market and acute impediments to creditworthy borrowers that must be addressed if we are going to accelerate job creation."

To be sure, the Wells Fargo/Gallup Small Business Index, which measures small business optimism, rose to 49 in July from 47 in April.

"The latest index scores show small businesses have made gradual progress since the economic downturn," said Lisa Stevens, head of small business for Wells Fargo.

"However, we know many businesses still face challenges in the marketplace. . . . Many continue to wait for more improvement in their businesses and the economy before they express confidence in the year ahead."

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

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