Despite a great need for capital by smaller companies, banks and other financial institutions appear to be reluctant to make loans critical for their growth.
In its yearly survey of smaller firms, this newsletter's parent, Information Strategies, Inc. has detected a three-year decline in the availability of credit for smaller enterprises.
Starting in 2008 and continuing through this year, smaller companies report a sharp increase in their ability to obtain financing. The results are significant in light of President Obama's efforts to encourage community banks to provide such loans.
Perhaps a major reason for this decline is the greater scruitiny by bank regulatory authorities of financial institutions' capital structures. The latest reports indicate more banks are on credit watch than at any other time this century.
Another factor may be the decrease in openings of new banks, traditionally a group that would tend to be looser in their loan requirements in order to build initial growth.
The president's ARC program is viewed as a success even though slightly more than 5,000 loans, with a maximum value of $35,000, will run out this year.
The chart below indicates the trend and perhaps explains why many smaller firms are still hurting from the recessionary period that appears to be improving.
| Year |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
| Had little difficulty obtaining financing |
23.1% |
22.4% |
22.1% |
19.3% |
15.1% |
15.1% |
| Had some difficulty obtaining financing |
22.1% |
23.4% |
23.6% |
29.1% |
31.8% |
31.2% |
| Had significant difficuty obtaining financing |
14.2% |
15.4% |
17.2% |
18.3% |
22.3% |
23.1% |
| Could not find financing |
4.3% |
4.8% |
7.5% |
8.9% |
10.1% |
11.1% |
| N/A or did not apply for loans |
36.3% |
34.0% |
29.6% |
24.4% |
20.7% |
19.5% |
| Respondents |
222 |
245 |
301 |
323 |
361 |
374 |
| 
