Small Business Lending Falls

Loans to Small Businesses Dropped at Double the Overall Rate

By EMILY MALTBY – WSJ

Government funding to U.S. banks has done little to ease the credit crunch for small businesses—and the situation doesn’t seem to be improving, according to a new report.

The value of large banks’ loans to small businesses shrank 9% between 2008 and 2009, more than double the 4.1% drop for overall lending, said a report released Thursday by the Congressional Oversight Panel, a group set up to oversee funds allocated by the federal government’s Troubled Asset Relief Program.

“Big banks pulled back on everyone, but they pulled back harder on small businesses,” said Elizabeth Warren, chairwoman of the oversight panel, in a discussion with reporters.

The U.S. Treasury Department’s TARP programs, launched during the depths of the financial meltdown, didn’t improve access to credit, the report claims.

“Treasury never required banks to lend their new money,” said Ms. Warren.

The squeeze on small-business credit “has been and remains a serious economic challenge,” said Gene Sperling, counselor to Treasury Secretary Timothy Geithner, in an interview. “There’s also little question that the crisis, the economy and small business lending would have been far worse without the swift and significant financial rescue efforts.”

Based on the Treasury’s own research, smaller banks that took capital from the rescue efforts showed stronger small-business lending than comparable small banks that did not, Mr. Sperling said.

The oversight panel didn’t include this data in its report, but said that small-business lending values at the smallest banks fell by about 2.7%, compared with a 0.2% decline in their overall lending.

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