Fed chief seeks more lending for small firms
WASHINGTON — Big companies are building up cash and are expected to report strong earnings starting this week. Not so for small businesses that can’t get loans — or hire freely until they do.
The gap helps explain why the economic rebound isn’t stronger and could even stall.
Federal Reserve Chairman Ben Bernanke stepped up pressure Monday on banks to break the logjam and lend more to smaller firms, which employ at least half of American workers.
Small-business owners are relying on personal credit cards or raiding retirement accounts to stay afloat, the Fed chairman said.
Bernanke and other regulators have urged banks for months to lend more to smaller companies. Lawmakers have complained that small businesses that want loans are having trouble getting them. Banks have countered by saying demand remains weak.
The Fed does have authority to create programs to increase lending, such as providing low-cost loans to banks. But economic condi-
Continued from B tions would probably have to weaken considerably before the Fed would propose such a move. One such program set up during the 2008 financial crisis was recently closed.
The Fed chief’s latest comments came as legislative efforts to spur small-business lending have languished and as the recovery has lost momentum. Bernanke spoke at a Fed conference held to explore ways to loosen lending to small companies.
“Making credit accessible to sound small businesses is crucial to our economic recovery,” Bernanke said. “More must be done.”
Some small-business leaders say they would hire more if only they had easier access to loans. One of them is Marilyn Landis of Basic Business Concepts Inc. of Pittsburgh, which compiles financial documents for other small businesses.
Landis said she would like to hire one or two more people for her 10-person firm. Yet even though she says she’s never missed a payment, her line of credit was cut about 18 months ago.
Nearly one-third of smallbusiness borrowers report difficulty arranging credit, the National Federation of Independent Businesses said.
By contrast, big businesses, which start reporting their second-quarter earnings this week, have enjoyed easier access to loans and low interest rates.
Analysts expect companies in the Standard & Poor’s 500 to report a 42 percent jump in profit by one measure, S&P said. For the current quarter, which ends Sept. 30, they expect a 31 percent rise.
The big companies also benefit from something available to few small businesses: plenty of cash.
In March, cash at S&P 500 companies hit a record $837 billion — about a year and a half ’s worth of profits. And S&P senior analyst Howard Silverblatt says he expects cash to rise to a record for the April-to-June quarter when figures are released later this summer.
Yet even as the economy has improved, lending to small businesses has declined. It’s dropped from about $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of this year.
The Fed and other regulators have urged banks to step up lending to creditworthy small businesses. Despite the push, such lending is still tight.
The effect on the economy is severe because small businesses tend to drive job growth during recoveries. They employ about half of Americans and account for about 60 percent of job creation, Bernanke said.