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Why Small Businesses Still Can't Get Loans
 

The New York Federal Reserve Bank surveyed more than 500 small companies. The consensus? Capital is still very hard to come by.

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Banks still aren't lending to small businesses as they did before the financial crisis. In a recent survey, the Federal Reserve Bank of New York discovered one potential explanation: Small-business owners are so discouraged that they've all but given up their search for bank loans.

According to a New York Fed poll, 59% of small businesses in the New York metro area did not apply for financing in the past year. Of these, nearly 50% did not apply because they did not think they would get approved.

“Luckily, I'm not looking for credit just yet,” Allison O’Neill, owner of the SoHo baby boutique Bundle, told the Federal Reserve. “But, a year from now, I likely will be, and I hope conditions get a little bit better, because I think it's still really hard for young businesses.”

O’Neill says she was lucky in that she had established a good amount of credit on her own. When she did approach her bank, she was told that the bank wasn't interested in taking on the risks involved in funding a start-up. (She eventually did find a loan--at a credit union.)

She's not alone--87% of credit applications filed by the 544 small businesses surveyed were rejected in 2011. The Fed also discovered that denial rates for companies seeking microloans were higher than for companies applying for larger loans in the past year.

Overall, 58% of respondents said they were discouraged, and 48% of those owners cited access to capital as their largest growth barrier.

“Our basic challenge is we need money to support our love--our product,” Yiorgos Samios, owner of Gogo’s Garlic Dip, told the Fed.

IMAGE: Getty
Last updated: Aug 15, 2012




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