Bernanke: $40B in small biz loans disappears

ben_bernanke.gi.top.jpgFederal Reserve Chairman Ben Bernanke spoke about the small business credit crunch and the urgent need to help Main Street businesses. By Catherine Clifford, staff reporter


CNNMoney.com (NEW YORK) -- In the last two years, $40 billion worth of loans to small businesses have evaporated, and correcting the problem should be "front and center among our current policy challenges," Ben Bernanke, chairman of the Federal Reserve, said in a speech Monday.

Loans to small businesses dropped from more than $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010, according to bank financial reports submitted to the Federal Financial Institutions Examination Council.

Bernanke, who was speaking at the day-long forum "Addressing the Financial Needs of Small Businesses" at the Federal Reserve, said that there are several factors behind the contraction in small businesses lending.

He cited weaker demand from Main Street businesses worried about taking on more debt during tough times, "deterioration in the financial condition of small businesses during the economic downturn," and a lack of supply of available credit.

"Clearly, though, to support the recovery, we need to find ways to ensure that creditworthy borrowers have access to needed loans," Bernanke said.

Monday's forum is the finale of a series of more than 40 roundtable meetings around the country between small businesses, lenders, bank regulators, trade associations and government officials that aimed to determine how best to help Main Street businesses that can't get the credit they need.

Throughout the dozens of forums, a couple issues came up repeatedly. In particular, banks noted they are stuck between a rock and a hard place. On the one hand, banks are being told to increase their small businesses lending, while on the other hand bank regulators are telling banks to tighten lending standards.

"We take this issue very seriously," said Bernanke. "Our message is clear: Consistent with maintaining appropriately prudent standards, lenders should do all they can to meet the needs of creditworthy borrowers. Doing so is good for the borrower, good for the lender, and good for our economy."

For small business owners, the collapse in the real estate market has also created another roadblock to obtaining a loan, since many depend on the value of their real estate as collateral for loans. Additionally, many manufacturers also rely on the value of their equipment as collateral for loans -- and those values have fallen off sometimes more than real estate.

"As one business owner at the Detroit meeting I attended put it, 'If you thought housing had declined in value, take a look at what equipment is worth,'" said Bernanke.  To top of page

Just the hot list include
Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Questions & Answers



QHow does a florist sell more in this economy? We changed our business to designing weddings and events only, as the everyday flowers are not selling. We had to throw out too much product at the end of the week -- flowers are perishable! More
Get Answer
- The Flower Lady, Suwanee, Ga.
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.80%3.88%
15 yr fixed3.20%3.23%
5/1 ARM3.84%3.88%
30 yr refi3.82%3.93%
15 yr refi3.20%3.23%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Sponsors

Sections

Bankrupt toy retailer tells bankruptcy court it is looking at possibly reviving the Toys 'R' Us and Babies 'R' Us brands. More

Land O'Lakes CEO Beth Ford charts her career path, from her first job to becoming the first openly gay CEO at a Fortune 500 company in an interview with CNN's Boss Files. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.