Small business lending reports confusing and revealing

Consider this headline from a Reuters story on June 30, 2011:

U.S. Small Business Borrowing Rises By Record 26 Percent In May

Now consider this headline from the Wall Street Journal on the same day:

Smaller Businesses Seeking Loans Still Come Up Empty

Read the stories carefully and figure out how both stories could be correct? Hint: How do the reports define a small business?

For businesses I consider to be small (those with 100 or fewer employees), the second story is correct. Always look for the size of the loans or revenue to determine if a news story is really talking about small business.

And for the real small businesses, especially microenterprises with less than 5 employees, access to capital is almost non-existent unless a business owner has enough personal equity for the loan. The problem even exists in other countries like Australia:

Banks put small business ‘under stress’

When did you ever hear a financial institution ask the CEO of a big corporation to securitize a business loan with his or her home? It doesn’t happen because the loan is based on the performance of the business.

That’s the way it should be for loans to small businesses also.

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