Tightening In Small Business Credit?
For US readers seeking to raise capital for their business, things might get a little tighter in the next few months according to Forbes after canvassing 10 bank executives and economists.
“Banks are going to be more careful about lending to small-business customers,” says Bill Bradford, professor of finance at the University of Washington’s business school, who has conducted research on small-business loans. “There’s going to be tightening.”
Most of the larger banks admitted that tthe present credit contraction had not affected small business; smaller lenders are taking a more cautious approach, most likely in the form of taking a closer look at customer information.
While it’s too soon to estimate the real extent of the damage, all agreed that the smallest businesses–those with less than $5 million in sales–will be squeezed the most; as will the many entrepreneurs who use their home as collateral.
“A lot of small-business people really rely on equity in their homes to help their small-business credit,” says Eric Seifert, senior vice president of commercial lending at Muskegon, Mich.-based Community Shores Bank. “Now loans using home equity to fill the gap have a higher possibility of being turned down.”
Interest rates have inched up too, but not by much. Small-business loans track the prime rate–the rate at which banks make loans to their most credit-worthy commercial customers. In January, small businesses with solid credit could borrow at a 1.0% spread above prime, or 9.25%; now the spread has widened to 1.25%, or 9.50%, according to Wachovia’s Ash. Several bankers said it could grow wider.
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