In the wake of the Great Recession, a lot of banks decided that they were going to hold on to their money as tightly as possible. Their loan departments remained “open,” but one can imagine that employees either felt a great deal of stress as they tried to meet quotas even though no one met their standards, or that the employees enjoyed a nice working vacation during which they did very little work since hardly any applicants met their standards.
Either way, the “open” sign was a bit of a lie since banks were hoarding money instead of lending it to small businesses.
Increase in Small Business Loans
Thankfully, that has started to change. After two years of denying applicants, small business loans increased by 10 percent in 2011. Finally, small businesses can stop eying their credit cards and start making decisions that will lead to long-term growth and success.
Loans are important to small businesses because very few people have enough cash on hand to start an organization. Without business loans, entrepreneurs just don’t have access to the money that they need to hire employees, rent office and retail space, buy merchandise, and invest in technology development.
Energizing the Economy
The signs of growth are everywhere. Banks have started hiring more loan officers to focus on small businesses; more entrepreneurs are realizing ideas that they dreamed up years ago; and more people are going out to shop. All three of these things are intimately connected, but the lending has to happen first. Without lending, there are no stores. Without stores, there are no customers.
Have Lenders Learned Their Lesson?
It’s good news that small business loans are on the rise, but every person has to hope that lenders have learned a few things since 2008. Ridiculously low lending standards helped push the economy into a state of instability. Most of the blame gets put on mortgage lenders, but you have to forget a sizable portion of history to accept that as the reason the economy fell apart.
Hopefully, lenders remember that they contributed to an economic system built on a spider web of business connections. Once businesses didn’t have access to loans, they couldn’t make payroll or keep their doors open. That’s when the real problems occurred: rising unemployment went hand in hand with falling business loans.
Now that small business loans are on the rise, lenders and borrowers need to maintain a more realistic perspective of how money (and borrowed money) works. They should move ahead, neither as cautiously as they have over the past couple years, nor as foolhardy as before the recession.