Banks Tighten Lending to Small Businesses

Virginia's Arlington County has seen a tightening of bank lending to small firms over the last six months and attributes it partly to the mortgage industry crisis.

Tara Miles, who helps start-ups as part of her job with the county's economic development division, said she's seen a drop in the number of Small Business Association guaranteed loans granted by banks to county-based businesses.

Arlington firms had received 10 SBA loans as of Mar. 28 compared to 20 loans during the same period last year. Falls Church and Fairfax also showed significant declines. However, Alexandria fared better, with businesses receiving 24 loans in the first quarters of both 2007 and 2008.

The county's Small Business Coordinating Council is hosting a conference Apr. 22 to address the problem. Miles said that the council initially had intended to focus the conference on procurement issues, but after they met to map out the agenda, the group decided to examine "best practices for businesses during tough economic times."

Washington Post Staff Writer Alejandro Lazo touches on the topic today with a story on how local banks are feeling the economic pinch.

Miles said bank economists are predicting an economic downward spiral over the next 18 months and a possible stagnation over the next four years.

"We need to educate business owners so they can plan or reevaluate their strategic plan for five years," said Miles. "It's going to be a challenge, but we've identified some areas where there are opportunities for business owners."

The financing troubles have implications in other areas, she noted: "We are running across businesses who are seeking government contracts -- maybe their first contract -- and they don't have the financial wherewithal to rev things up to respond before the government releases the money to them."

Miles acknowledged that the Washington metro region is "somewhat buffered" from a dire economic nosedive thanks to the federal government keeping parts of the local economy humming, but said a lot of business owners use the equity in their homes for financing, and with home values dropping, that source of funding is drying up. If banks are also cutting back on commercial lending, these business owners will need to find a new source of cash flow.

Speakers at the conference include Jim Carr, chief operating officer of the National Community Reinvestment Coalition, and Anirban Basu of the Sage Policy Group.

By Sharon McLoone |  April 8, 2008; 10:08 AM ET
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