Ben S. Bernanke, the Federal Reserve chairman, recently encouraged banks to increase lending to small businesses. He firmly believes that small businesses are the key drivers to the US economy and where our road to economic recovery and reduced unemployment starts. Bernanke states that “while maintaining appropriate prudence” lenders should try to satisfy the needs of these small businesses because the well being of the banking system depends primarily on the banks “lending to small businesses that are well positioned to pay”. Job growth depends greatly on small businesses but it becomes difficult for these businesses to expand payroll if they do not have “sufficient access to credit” Bernanke says.It is a known fact that that small businesses rely on financing much more than large companies. This financing help stabilize the business enough so that it increases employment, creating jobs for those who need it. Lending institutions must overcome the fear that small businesses will not pay off their debt and realize that it is needed for the economy.
Based on our application rates at AFS, we know the issue is not demand. Currently AFS is processing well over 1,000 applications per month, an all-time high. As I’ve stated before the issue now is supply of credit for small business. Bernanke further stated that lenders feel as if there is no longer a strong demand from creditworthy borrowers. He could not be further from the truth! We are seeing a dramatic rise in applications from bankable business clients with credit scores in excess of 750, two years operating history and decent business credit.
Furthermore, Fed bank presidents are contemplating the need to eventually raise interest rates. This needs to be done because of the record low interest rates now and to decrease the possibility of inflation. Doing so would constrict the supply of credit even further!
While we realize that the current state of business lending is a boom for our industry, a gradual overall increase in bank lending will benefit the entire economy. This will result in lower defaults for MCA funders and increase profitability with a stronger portfolio. The key will be capturing market share through reasonable pricing coupled with service.
