What can be done to improve small business lending?

Why is it difficult for small businesses to get loans?

Since the recession, it has not been easy for small businesses to get loans. This fact has in some ways stymied a stronger recovery, as business owners who cannot borrow money cannot invest in the future growth of their business.

Part of the problem, as contributor Ami Kassar writes in the New York Times, is that it can be difficult to determine exactly how well small businesses are doing. What, exactly, constitutes a small business? The studies that Kassar examined could not agree on that point, which led to much confusion when trying to compile the data.

In addition, Kassar complains that it is also difficult to determine how much lenders are really giving out. This is because lenders are not held to the same standards when it comes to reporting their activity to the government. For example, Kassar cites the alternative lending business, which is almost impossible to quantify for these reasons.

The reason why it is so important to have this information, Kassar writes, is because many business owners are in need of a much improved education about common lending practices and their options.

“One thing for sure is that the lending market has gotten more confusing since the recession,” he writes. “If we don’t find ways to educate, the confusion will only lead to bigger problems down the road.”

Given that many borrowers may not know as much about loans as they should, it is important for lenders to be vigilant about who they issue loans to. By making use of risk assessment software, lenders can ensure that they are making wise decisions.

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