Small Business Loans slashed by Local Banks

CNN Money reported that 11 of the 22 banks that received Trouble Asset Relief Funds (TARP) have cut their credit lines to small businesses by some $2.3 billion last December, according to the treasury department.  While 10 of the banks have paid back their TARP money, and thus do not have to report their small business loan data to the treasury department, 11 of the other reported increase decline in small business loans, and 7 of those have declined consistently since receiving the tax payer’s bailout money.

While large banking institutions are declining to increase funding for small businesses, President Obama is relying on small banks to pickup the slack, as he proposed last month in his State of the Union Address a $30 billion TARP plan to incentivize local banks to fund small businesses.  Some critics were hesitant to get involved with the program due to restrictions, while others have criticized the Obama administration for diverting tax payer’s money into a “piggy bank” for bailing out small businesses.  In reality, the TARP money is supposed to be deposited into the general fund of the Treasury to reduce public debt.

In reality, it doesn’t seem like the banks have a lack of money to invest and spend, but a hesitancy and a lack of will to invest into small businesses that are far more riskier investments than large companies.  On the side of small businesses, it seems silly to do business with a bank if they are not reciprocal in their business practice by not providing the merchant with a line of credit.  While a small business loan from a business cash advance company is more expensive, provided that credit card volume doesn’t change too drastically, the merchant will always have a line of credit with that lender.  That is more than a bank can say.