ECONOMIC DEVELOPER’S LAMENT – THE NO MONEY PARADOX OR LOOK”N FOR LOVE IN ALL THE WRONG PLACES (Thanks – Waylon Jennings)

 

We bailed out Wall Street but there’s no money on Main Street!

Speak to any economic developer and they will regale you with not so amusing stories of small businesses being denied credit, credit needed to grow small businesses and create jobs.

Credit lines that once provided operating capital are being called and cancelled. Lenders, even with a government 90% guarantees backing are unwilling to extend credit.  Refinancing when required is often at higher interest rates and shorter terms squeezing more cash flow away from business operations that create jobs. 

Stories abound, like the one printed in the current issues of Entrepreneur Magazine and recent headlines in the Wall Street Journal.

“SBA currently has a loan programs in place that work with banks, guaranteeing as much as 90% of a lenders’ small-business loan against default.  In 2009, these guaranteed loans were down 37% compared with two years earlier.” A Plea for Direct Lending to Companies – Proposed Legislation Calls for the Small Business Administration to Take On an Added Role – Lender of Last Resort” (March 4)

“Last year 125 venture funds collected $13.6 billion, down from 203 funds that raised $28.7 billion in 2008”, and

“There were 794 active venture-capital firms last year, down from 885 in 2008 and a peak of 1,023 in 2005.” Venture Capital Firms Caught in Shakeout. (March 8) 

“Consumer lending fell by 3.8%, as roughly 7,200 banks and credit unions pulled back on mortgages, credit cards and other loans.”  Where to Find the Money Despite a Contraction in Consumer Loan, Some Banks Are Rolling Out the Dough. (March 13-14)

“In 2009 total lending by U.S. banks fell 7.4% the steepest drop since 1942” – Lending Squeeze Thwarts Revival of Small Businesses (March 15) 

“Fed up with tight supply of credit, states and local governments across the U.S. are starting to punish big banks” Cities, States Tell Banks They’ll Go Elsewhere (March 17)

If there’s no money on Main Street how do small businesses fund job creation?

This is a perplexing question, especially with substantial research documenting that small young businesses create post recession jobs.

Should government step-in and become a direct lender to small business?

They did so for the “too big to fail” businesses, ones that certainly will not contribute to job creation, if post recession history repeats.

Should TARP funds be used for SBA Direct lending as suggested by Rep. Nydia Velazquez (D., N.Y.) chair of the House Committee on Small Business?

However if credit is frozen to the small businesses we rely upon for job creation, then government action is required.

An argument can be made that small business job creation is “to big to fail – being the economic engine that puts folks back to work as the economy exits recession”.

Let’s not leave small young businesses, as Waylon might say –

“looking for love in all the wrong places
Looking for love in too many faces
Searching your eyes, looking for traces
Of what.. I’m dreaming of…”

Action is required, sooner rather than later.

Tags: Charles Eckenstahler, Chuck Eckenstahler, economic development, entrepreneurship, entreprenturism, Midwest economic development, new business formation, small business, small business formation, young business job creation