Larger small businesses receive more financing

Although banks have begun to increase their lending to small businesses, larger, stronger small businesses reportedly are the ones typically receiving loans and lines of credit, according to The Wall Street Journal.

As money from small-business banks goes to the "big" small businesses, the smallest companies—with less than $1 million in annual revenue—have not been recovering at the same pace.

During the first six months of 2010, small businesses that were most successful in obtaining financing had positive revenue growth, a five-year track record or used 2008 profits to help survive the credit crunch.

Banks say the health of a company's industry is a factor when they are lending. Some lend mainly to industries that don't depend on discretionary consumer spending, such as physicians or engineering firms. Those in industries such as the restaurant industry are having a more difficult time obtaining lending and say banks are being too picky about borrowers' revenues and industries.

Federal Reserve data shows demand is strong with 59 percent of business owners trying to obtain financing during the first six months of 2010; however, applicant quality is weaker.

Marc Bernstein, head of San Francisco-based Wells Fargo's small-business division, says the broadest problem regarding extending credit is business owners still are trying to pay off debt they accrued before the recession.

"I don't want to hear anybody tell me banks don't want to make small-business loans," Bernstein says. "We really are stretching as far as we prudently can stretch to approve as many as we can. We have an obligation to make sure they are repaid."

Date : 11/10/2010