THE CHALLENGES OF OBTAINING SMALL-BUSINESS LOANS W 200 de financial cast of the late 1.6 percent in a three year period, Banks knockout for many small businesses: fall- ing sales, lack of collateral to apply for loans due to plummeting values of commercial and residential real estate, and difficulty finding banks willing to issue small-business loans. Even when the economy began to recover, banks remained cautious and risk-averse, and stricter regulations required them to retain more capital and therefore lend less generously. However, things are looking up for the small-business lending environment. During the recovery from the latest recession, the amount of small-business loan applications approved by large banks grew from 9.7 to lending large amounts to big corporations or eased back on elevated credit requirements, "large" small businesses ($10 million or more and rising property values allowed small- in revenue). Therefore, many startups and business owners to return to using real estate small businesses still may be unable to secure as collateral. These trends are expected to a bank loan and will have to continue relying continue as the economy further rebounds. on alternative financing sources." On the other hand, significant barriers continued to prevent the lending environment Discussion Questions from returning to pre-recession levels. Tradi- 1. Why is it important for small businesses to tionally, small community banks were a large have access to loans and other financing? source of small-business loans, but many 2. Can you think of reasons why the bank- went out of business with the market crash; ing industry might be moving toward con- now, rather than their numbers rising again, solidation, rather than seeing a rebound in the industry is moving toward increased smaller community banks? consolidation in fewer, larger banks. These 3. If a small business cannot get a bank loan, banks do not make much money on smaller where else could it look for financing? loans (under $1 million) and so focus more on