Start-ups and small companies are having an increasingly difficult time borrowing from banks, the New York Times reports.
"Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term 'commercial paper' not backed by collateral — collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data," writes the Times' Peter S. Goodman. "That is the largest annual decline since the credit tightening that began with the last recession, in 2001."
Goodman notes that the fall-off in lending totals nearly $150 billion, which would essentially negate the economic stimulus provided by the Bush rebate checks mailed this spring. According to Federal Reserve data cited in the article, 55 percent of all banks say they are introducing stricter criteria for making a loan, and 70 percent say they have added or raised fees for borrowers.
The entrepreneurs interviewed in the piece said the tough credit market made it difficult to expand. One CEO who had been brought into a company to turn it around said that his bank held up a loan over the fact that the business posted a loss in 2005, even though it's financial situation had substantially improved since then. Another entrepreneur said he was tightening the credit terms extended to customers, just as his bank was applying greater scrutiny to his business.