Newspaper article The Christian Science Monitor

Credit Crunch for Small Business

Newspaper article The Christian Science Monitor

Credit Crunch for Small Business

Article excerpt

IS a credit crunch squeezing economic expansion in the United States?

The evidence may be anecdotal rather than statistically solid, but many small-business owners feel instinctively that the answer to this one is yes. They feel squeezed by either overzealous regulation of banks and thrifts, or overzealous enforcement of otherwise sensible regulations.

The problem has been most acute among the small-to-middling enterprises employing 50 to 100, which typically rely on bank lines of credit to smooth out the cash flow through the year.

Even those who have been in business for a number of years are finding their familiar neighborhood banker making tougher demands for collateral, detailed business plans, and tax information.

If I had all this, I wouldn't need the loan, some businessmen are muttering under their breath.

And if small businesses really are being squeezed, this has implications for the whole economy, because, as their owners love to point out, small firms are where jobs are created in America.

The spate of positive economic numbers out within the last couple of weeks notably did not indicate much improvement on employment: Payroll employment was up, but by a far smaller rate than is typical during a recovery phase, and unemployment was down, but largely because half a million people have given up looking for work. Some analysts are wondering whether we are having an economic recovery divorced from employment expansion.

But is freer lending what's needed?

William Brandon, president of the American Bankers Association, caught President Clinton's attention at the December pre-inaugural economic confab with his estimate that relaxed banking regulations could be expected to produce $86 billion in increased bank lending.

But Rep. Henry Gonzalez (D) of Texas, chairman of the House Banking Committee, is less impressed, and has written to Mr. Brandon to ask him to explain how he arrived at that figure.

The General Accounting Office has promised that by late spring, it will have issued recommendations for easing banks' paperwork, but Charles Bowsher, head of the GAO, has urged Congress to proceed with great caution. …

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