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Federal Reserve Chairman Bernanke Says Borrowing Difficult for Small Firms

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Bernanke is increasing pressure on lenders to expand credit to help boost U.S. growth and employment after a report this month showed private employers added fewer workers to payrolls in June than forecast. According to government data, banks’ loans to small businesses fell to $670 billion from $710 billion over the past two years.

"Making credit accessible to sound small businesses is crucial to our economic recovery and so should be front and center among our current policy challenges," said Bernanke. "...Consistent with maintaining appropriately prudent standards, lenders should do all they can to meet the needs of creditworthy borrowers."

Last month, Bernanke and fellow Fed policy makers reiterated a pledge to keep the main interest rate close to zero for an "extended period" and said "tight credit" is still holding back consumer spending. "The formation and growth of small businesses depends critically on access to credit," Bernanke said. "Unfortunately, those businesses report that credit conditions remain very difficult."

A business owner at one of the series of meetings in Detroit commented, "If you thought housing had declined in value, take a look at what equipment is worth." Many business owners have had to borrow on their personal credit cards or from retirement accounts, Bernanke said.

Bankers at the conference said they were willing to extend credit and urged small-business owners to meet with their community lenders.

"We need to get confidence back into the markets, and that’s difficult when we’re hovering around 10 percent unemployment," stated Jack Hopkins, director of the Independent Community Bankers of America. Hopkins, who is also chief executive officer of CorTrust Bank NA of Mitchell, South Dakota, said community banks are willing to lend.

The House of Representatives last month passed a bill that would create $30 billion plan to offer community banks incentives to loan money to small companies. All but three Republicans opposed the legislation, which they say amounts to a bank bailout.

Hopkins agreed that the bill would help the economy.

One problem banks face is "healthy borrowers not wanting to borrow," said Kevin Watters, chief executive officer for business banking at JPMorgan Chase & Co. The New York-based lender is "trying to get borrowers off the sidelines," he said.

Another challenge is that banks have "limited access to information on which to make decisions" about lending to small businesses, Denise Pickett, an executive vice president at American Express Co. Getting banks more and better information about potential borrowers is "absolutely critical," she said.

Naylor, LLC
Naylor, LLC