The Fed to Address Credit Pinch for Small Business

As U.S. community banks continue to struggle, 41 percent of businesses under six years old cannot obtain a business loan.

Jim Brown, owner of JWB Properties LLC, says community banks called him almost every day in 2006 trying to lend him money. Now, his homebuilding business in Atlanta can’t get a loan.

“The small banks became really, really cautious, and real estate became a dirty word,” said Brown, 65, whose one-man company takes on workers on a project-by-project basis.

Profitability Gap

That disparity reflects, in part, the gap in profitability between large and small banks.

Regulators’ Focus

Regulators have increased their focus on real estate-backed loans and commercial borrowers that started operations recently, said Jack Hartings, chief executive officer of The Peoples Bank Co. of Coldwater, Ohio.

Early Losses

The biggest banks generally recognized their losses tied to the housing bust and subprime crisis early on during the downturn, while the deterioration of construction or commercial real estate loans that hurt small banks took years to develop, the St. Louis Fed’s Stackhouse said.

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