As banks recover from the global financial meltdown of 2008, they have become more cautious: keeping more of their cash in the vault and raising the bar for who they will loan money to. In some cases, the old cliché of banks only lending to people who don't need money is coming true.
Nationwide, lending by the banking industry fell by $587 billion in 2009, the largest annual decline since the 1940s. According to one study, only half of small employers got the credit they wanted last year.
While this means fewer risky loans, overall it also means that fewer companies, especially small ones, can get the loans they need to grow.
In his ongoing series of reports making sense of economic news, Paul Solman examines the struggles of companies to gain enough credit to stay afloat as lending remains tight.
"I don't think you can walk into a bank and get any type of money for an idea anymore. You have got to be able to cash-flow it within a very, very short amount of time and show them a return on it. Otherwise, it's going to be tough." Tim Stack, general manager, SRC Logistics
"We would have been in a position where we couldn't supply our customers. If you don't have the cash to supply them with the product, they will find another supplier." Tim Roth, general manager, SRC electric
1. What is the role of a bank?
2. What is a loan?
3. Why do most small businesses need loans?
1. Why do you think banks are now more risk averse? Do you think they will become less cautious as time goes on?
2. How do you think individual companies make decisions about how much they should borrow? Is it similar to the way individuals make these decisions?
3. What skills do you think you would need to start a business? Does this report make you more or less enthusiastic about owning your own business?