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Credit – for better or worse, it's how a lot of us do business in the U.S.
Since the financial market collapsed two years ago, banks have kept a tight line on extending credit, and often small businesses suffered the most. If they didn't use their credit lines often enough – as was the case with a friend of mine who owned a print shop – those lines were reduced or closed. If they used them too much, they could be called in by the banks for immediate repayment.
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For distributors, the plummeting value of inventory and property and slow pay from customers put further limits on what banks that were willing to lend were actually willing to lend. (See Credit Crunch Continues to Hurt Channels from the 2010 Distribution Landscape Report.)
That said, there have been signs that the trend may be shifting. A recent article in the Wall Street Journal revealed that several banks – particularly large national banks – have introduced what's being called a "second look" program to provide individual review of rejected applications. These second reviews allow loan officers to give more weight to factors such as existing relationship and history with the customer, rather than solely focusing on current conditions.
And the latest Senior Loan Officer Opinion Survey on Bank Lending Practices released by the Federal Reserve Board in August indicated that domestic respondents reported easing standards for lending to small firms for the first time since 2006.
Not everyone is optimistic about the impact such programs will have. The WSJ article cites William Dunkelberg, chief economist of the National Federation of Independent Business, as believing "second-look programs are aimed more at rehabilitating banks' public-relations image than at making new loans." Last month's NFIB Small Business Economic Trends report may support that belief. Survey results showed that borrowing levels remained at a near record low.