Most people realize that small businesses are the engine for a healthy economy. Right now, that engine is running out of gas due to lack of capital to fund operations. If small businesses cannot get access to capital, they cannot hire people, buy equipment and supplies that also provide jobs to other industries. The stimulus money has yet to reach this important sector of our economy and the question is WHEN? Some observations:
1-banks got billions to shore up their balance sheet to be able to make loans. Guess what? They are not. They are taking the money and using it on short-term very secure investments and taking the ‘spread’ for themselves. The spread is what they pay you for deposits (zilch) and loan out at 5% plus…which is mostly profit.
2- our government caused this mess because they thought banks would actually loan the money out. It would have been better if those in Washington guaranteed loans to well run small businesses that would have used the funds to stay in business. We would have only had to lay out capital (the taxpayers) if the venture failed, not pumping funds into a pool with a hole in it.
3- Banks only loan money when you don’t need it. A couple years ago they were giving credit, creating risky swaps etc. like a drunken sailor. Now when you actually need a loan the application must have a bag of cash wrapped around it.
4- Small business does not have the ‘too big to fail’ moniker like Citi Group or General Motors. We are only rewarding bad management and bad decisions by keeping them open. In the small business world, you just cease to exist. In the animal world, the lion eats the weaker, slower zebra. In our world, the poacher kills all the lions to protect the weaker zebra.
Many small business owners have very good credit and have paid their bills on time. You could never get rich (unless inherited) simply by using your own money. Credit markets presently are not incentivized to foster small business lending. Our entrepreneurial enterprises are at a very large disadvantage, because they do not have the big brother, with the big pockets to bail him/her out.
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