Jobs: Small Business Loans Are The Mountain Blocking Economic Recovery

By Phillip Williams on April 17, 2010, 9:27 am Posted in Economy News

Newsweek recently announced that the economy was starting to recover. Consumers who are still looking for the jobs that were lost during the downswing are probably wondering when this magical recovery started. Relief may not come immediately to the unemployed. The credit crunch that started the recent recession, also known as the Great Recession has not eased. Loans to small businesses are still lagging behind other sectors of the economy.

Why Small Business Loans Are Important

The economy has lost 8.4 million jobs since the start of the recession. Small businesses employ the majority of the American workforce, although the largest single employer is still the federal government. When the economy starts to recover small businesses rely on loans to bring up their inventory levels. Large banks and smaller institutions have been reluctant to introduce new loans after the failure of a large number banking institutions.

Small banks do not have the resources to start lending again, and the number of new loans have gone down since the start of the recession. Banks that received funds from the Troubled Asset Relief program. The larger banks that were branded as too big to fail have also reduced the number of new loans they make to small businesses. They have reinvested the funds in lower-return, lower-risk treasury bonds instead.

The Engine Of Economic Recovery

Lowering taxes will help free up a larger amount of money, but it may not help create the jobs that will end this recession. As long as lenders are unwilling or unable to extend credit, the jobs that were lost will not return. Unless the normal flow of credit can be restored to small business, the recovery will proceed slowly. The current pattern for the slow economic recovery follows the normal boom and bust cycle associated with credit collapses.

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