Businesses Finding Credit Tougher to Come By
April 24, 2008
Businesses are having a more difficult time obtaining credit, the result of America’s large-scale credit crisis.
The number of loans backed by the Small Business Administration has fallen in the southern Florida district, according to the area’s director, Pancho Marrero. Not only are banks making it more difficult to obtain loans, but small businesses are also hesitant to expand.
A Federal Reserve study in January noted that 1/3 of American banks had enacted stricter loan standards during the 4th quarter. As a result, the cost of credit lines is rising.
In a published report, Marrero stated, “The hit that lenders have taken in the mortgage side and the substantial losses they experienced has led them to tighten credit in other areas.”
Banking analysts note that the credit crisis is making the economic slowdown worse than it might be otherwise.
In the past, banks have extended business loans to individuals who did not have much experience because they possessed high-value collateral. However, in the wake of the nation’s economic crisis, the rules have changed. Banks are now requiring not only experience, but also a well-crafted business plan and an impressive credit score.
If you’re a small business owner in need of a loan, experts recommend thoroughly researching the industry and determining how your competition is faring. You should also be conducting financial projections, including expenses and anticipated income. If you have limited experience in the industry, you should consider partnering with someone who is much more experienced. It’s also a wise idea to obtain a copy of your credit report and credit score. That way, you’ll have a clear understanding of the criteria upon which you’re being judged. Make sure you correct any inaccuracies and add statements to your credit report providing context for any credit problems you’ve had in the past.
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