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Tight Credit Limits Jobs Growth Among Small Businesses

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Economist fear tight credit markets could force small businesses to close shop or limit expansion among firms that account for nearly 60 million jobs.

Small and medium-sized businesses, which employ more than half the American workforce, will face tight credit markets and limited access to loans well into 2010, the Federal Reserve Board said Monday.

Economists fear the struggle to access cash could force many to close shop or limit expansion, a daunting prospect as businesses with 500 or fewer employees account for nearly 60 million of the nation’s 120 million jobs.

Senior loan officers at banks nationwide told Fed regulators they were worried about losses on consumer credit cards and the commercial real estate market and are reluctant to risk more money on small businesses, according to a report Monday in the New York Times.

Some 14 percent of small businesses found loans harder to secure in August than in July, according to the most recent survey by the National Federation of Independent Business. Among companies borrowing regularly, less than one-third reported that all their credit needs were being met.

The Small Business Administration, which guarantees loans to qualified small businesses, said it backed only 44,221 loans in fiscal 2009, which ended Sept. 30, down 36 percent from the previous year.

The result is slower job growth among small businesses, which rely heavily on loans to expand and add employees.

“It’s quite significant, because small businesses generate significant job growth,” said Andrew Tilton, a senior economist at Goldman Sachs. “And small businesses rely more on bank financing, whereas large businesses have the alternative of raising money in the capital markets.”

(Image by World Resources Institute Staff via Flickr, CC3.0)

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