US financial institutions hamper recovery screwing credit for small businesses

 As everyone of us waits for the economic recovery and stability to return to the United States there are still many challenges that are not only coming out of external circumstances independent of our nation but a great number of such obstacles on the way to recovery are being created inside. While small businesses in the US create over 50% of jobs in America there is financing for these companies and firms as banks and other money institutions refuse to provide credit.

Small businesses report that their home equity lines of credit have been cut, business credit lines withdrawn and credit card limits slashed. And this is the case even for the still profitable outfits who complain of a major pullback by banks, which many warn will leave a U.S. economic recovery stillborn.

Todd McCracken, president of the National Small Business Association (NSBA), and other small business advocates urge that if banks do not provide more credit to small businesses America's entrepreneurs cannot expand, hire people and grow the economy.

"The situation when it comes to credit is just as bad as it has been for months," he said. "But it's now that we see some signs of a potential recovery that we need credit the most. Without credit, the recovery is not going to happen."

Data provided by the U.S. Census Bureau show that in 2002 the United States had 112 million workers on payrolls. About 56.4 million of them, more than 50 percent, worked at small businesses.

"Many self-employed people just starting out couldn't get a business loan," said Namoch Sokhom, director of the business development center at the Pacific Asian Consortium in Employment in Los Angeles. "But then the bank would point out they had hundreds of thousands of dollars in home equity. They would offer them a personal loan based on that."

However, as it was already noted 

But the home equity line of credit, a common source of loans for small businesses during the boom, has been cut.

"All of a sudden, unless you had perfect capital, perfect collateral and perfect cash flow, you couldn't get a loan from a bank," said Roberto Barragan, head of nonprofit lender Valley Economic Development Center in Van Nuys, California.

All existing credit lines have been tightened by the financial institutions.

The half year survey by NSBA in July showed that 38% of the polled said that during the past half year their credit lines or their credit card limits had contracted, which is 28% more than in December. 67% admitted they were hit by the credit crunch, which is up from 55%.

"If you have suffered any kind of sales decline, banks are running for the hills," said George Cloutier, head of Orlando, Florida-based American Management Services Inc, which has 6,000 small business clients in 30 U.S. states. "Half of our clients are making 50 percent or less of what they made in 2007."

Even loans backed up to 100 percent by the U.S. Small Business Administration have dried up. So banks are balking at the risk even if the government covers losses.