Tags: Banks | Rates | Small | Business

Banks Jack Up Loan Rates for Small-Business Owners

Friday, 30 March 2012 07:43 AM

Banks that are eager to lower risk are jacking up interest rates they charge some small-businesses on credit lines, putting some small business owners at financial risk.

"It's hurting us at just the wrong time because I'm getting hit with rising food costs and gas prices," Mitchell Martin, owner of a small eatery and catering business in Herndon, Va., told The Wall Street Journal. "I'm flaming mad."

Martin received a notice dated March 19 from Wells Fargo, upping his interest rate to 8.25 percent from 5.75 percent. The increase takes effect in May.

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Martin's current interest payment is 2.5 percent over a prime rate of 3.25 percent, which yields a 5.75 percent interest rate. The new increase of 2.5 percentage points on Martin's line of credit will effectively double the spread over the prime rate to 5 percent, yielding an 8.25 percent interest rate.

Small-business owners still to obtain credit from commercial banks.

Outstanding loans to small businesses fell 4.5 percent to $597.8 billion in 2011, from $626 billion in 2010, according to data from the Federal Deposit Insurance Corporation released last month. The figures do not include credit lines.

Forbes magazine reports that the U.S. Senate has approved legislation that legalizes crowd funding, which allows the general public to make equity investments in startup companies and small businesses.

The bill, met with bipartisan support, passed as part of the part of the JOBS Act (Jumpstart Our Business Startups Act) by a 73-26 margin, and will go to President Barack Obama for his signature.

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