The problem with more small-business lending as a creator of jobs

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I recently spoke to the owner of a small company who is buying a new building. He is in an industry—energy-related—that happens to be doing quite well right now. Banks, he said, are tripping over themselves to loan him money. Three different lenders are competing for his business, which means that he’s been able to go to back to them to get better terms.

This anecdote is completely at odds with the notion that banks aren’t lending enough to small businesses, and are thus hampering economic recovery and job growth. I’ve long wondered how much of the perception on the part of politicians that banks aren’t lending enough is tied to the perception on the part of bankers that there aren’t enough businesses in good enough shape to lend to.

A new survey out from the management consultancy George S. May International sheds some light on the issue.

In a survey of 713 small business owners, 80% gave their businesses a nine-month lifespan should economic conditions not improve. Four percent figured they’d be out of business within six months, and 16% said they’d be belly up within three months without a broader economic uptick.

Who wants to go lend money to small businesses now?

As George May managing director Paul Rauseo said in releasing the results:

“There continues to be a lot of fingerpointing going around, and small business owners are blaming the banks for not lending credit to them, which may result in their businesses folding. But the banks are not the problem; small business owners needs to get themselves into a position where the banks will be able to lend to them.”

An interesting take.

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