Finance a Business

Nervous after the mortgage meltdown and under greater regulatory scrutiny, banks have been adhering to traditional lending standards, which many small businesses can’t meet. Analysts also doubt whether banks have the appetite for the kind of hand-holding that entrepreneurs often require.

Small business lending also took a dive during the crisis as potential borrowers, with their sales and creditworthiness evaporating, ditched plans for expansion. Many of those that did apply for loans complained that banks, in addition to not giving them, were canceling credit lines and reducing credit card limits.

Small business loan volume plunged 42% in 2009, and dollar volume was down 30%, the New York Fed says. Even the volume of SBA loans, which are largely guaranteed by the federal government, fell 36%.

In late 2009, as banks began to recover, President Barack Obama met with bankers at the White House and leaned on them to lend again. The banks said they’re trying to streamline credit procedures for small businesses. Many banks have “second look” programs, in which they review an application that was originally turned down.

Still, overall results of these efforts are mixed. As a result, more companies have turned to leasing to finance essential equipment required to grow their business.