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Talks about Granting Loans to Good Credit Businesspeople Now Being Discussed

By Faye Mergel
Published: Friday, June 25th, 2010

e00009886Small business accounts for the majority of economic activity in a country. That is why right after economic problems are resolved; the government pushes for the creation of many businesses in order to revive the ailing economy. And Federal Reserve Charirman Ben Bernanke has the same sentiment and wants to employ this solution in order to help the US economy recover.

In his speech in a small business round table discussion, Bernanke said that the creation of business will then generate a need for employees. It starts with the creation of businesses and the high unemployment rate will significantly drop as more and more business owners hire additional manpower that will operate the newly-opened businesses. Establishing businesses will create money and the more businesses established the more that the country will benefit from their taxes.

But in order to start a business, a person must first be able to gather the necessary funds to do so. One way is to ask loan from a bank. But it is not that easy to secure a loan in an agreeable rate—especially for people who do not have a good credit standing. And outstanding loans available to small business also dropped from $700B to $660B in the first quarter of 2010. But these figures must be further analyzed since it must be determined whether this loan drop is caused by restriction on credit availability or smaller demand for loans from start up businesses.

Lending conditions still remain as stringent as ever, with the financial turmoil only making banks extra cautious about granting loans. From the perspective of a borrower, the bank’s stringent measures correspond to a drop in the number of obtainable loans. On the other hand, from the bank’s perspective it seems as if there are less people who want to obtain loans. And it becomes a causal problem wherein the two parties cause the dilemma of the other unknowingly.

While it is the duty of the bank to continually look for eligible borrowers, it must not be too picky lest it wants to reserve the right of making businesses to those who are well-off. The common goal here is to help the economy recuperate from the blow of the recent financial turmoil. If banks will not allow people to have the initial funds to implement their business ideas then it will most likely mean that few businesses will be set-up and it will take longer before the society can see a more productive economy going.

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