Feature

Business columns: Banks can’t lend without borrowers

Banks would be delighted to make more small-business loans—that’s one of their primary profit centers, after all—but they can’t find viable borrowers, said Katherine Ryder in Fortune.

Katherine RyderFortune

Conventional wisdom has it that skinflint banks are stalling the recovery by refusing to lend to small businesses, said Katherine Ryder. Even Federal Reserve Chairman Ben Bernanke complained last week that banks “are systematically denying loan requests from financially credible small businesses.” But conventional wisdom is wrong.

Banks would be delighted to make more small-business loans—that’s one of their primary profit centers, after all—but they can’t find viable borrowers. Small-business loan applicants fall into two camps: those trying to stay afloat and those seeking to expand. “Too many still fall in the former group.” And if a banker does take a chance on an iffy borrower, nervous regulators will require the bank to set aside cash in case the loan defaults—which reduces or even eliminates the bank’s profit. Besides, getting deeper in debt is the last thing that many small businesses need.

Certainly, America needs “to get small businesses up and running again.” But “foisting loans on them” isn’t the answer.

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