Fed chief seeks more lend­ing for small firms

Austin American-Statesman - - BUSINESS - By Jeannine aversa

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.

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