WASHINGTON – The Federal Reserve Board said Monday it found that the "worst is over" for small businesses seeking credit, but that's not what some people on the ground are saying.
Robin Prager, assistant director of research and statistics for the Fed's Board of Governors, said that a fact-finding mission launched by the Fed in February has found that, "Overall, survey data suggests that economic conditions, though still quite challenging, are less dire than they were in 2009," Prager said at a Fed-sponsored forum on small-business lending.
Prager cited the National Federation of Independent Business small-business trends report from June, which found that optimism among small business owners is the highest it has been since 2008.
"We're not feeling that," said Leslie H. Benoliel, executive director of the Philadelphia Development Partnership, one of the area's largest providers of microenterprise business advice. "It still feels very depressed."
Other groups representing and advising small businesses across the country agree. "I'm not sure where this turnaround is," said Selma Taylor, executive director of California Resources and Training, another group that advises small business.
Both Benoliel and Taylor were attending the Fed lending forum.
Federal Reserve Board Chairman Ben Bernanke opened the day-long conference by urging banks and regulators to seek out ways to ensure that small businesses get the credit they need to create jobs.
"Making credit accessible to sound small businesses is crucial to our economic recovery and so should be front and center among our current policy challenges," Bernanke said.
Fed officials have become increasingly worried about stubbornly high unemployment. The jobless rate edged down to 9.5% in June from 9.7% the previous month. But the economy shed jobs for the first time this year, with nonfarm payrolls falling 125,000 last month.
"The formation and growth of small businesses depends critically on access to credit," Bernanke said in the text of his remarks. "Unfortunately, those businesses report that credit conditions remain very difficult."
The forum is the culmination of a fact-finding mission the Fed launched in February to identify how to improve credit access for small firms, which account for about 60% of job creation.
Fed officials have hosted more than 40 meetings around the country with small businesses, bankers and community leaders to identify obstacles that have contributed to a continued contraction in lending.
Bernanke cited data showing that outstanding loans to small businesses have declined to less than $670 billion in the first quarter of 2010 from about $710 billion in the second quarter of 2008.
While major banks eased loan conditions for big firms during the first quarter, lending standards remained tight among the local banks that small businesses rely on, according to the quarterly Fed survey. Similarly, a survey by the National Federation of Independent Business found that the proportion of firms reporting tighter credit conditions over the past three months remained "extremely elevated," Bernanke said.
Some lenders participating in the meetings viewed the current lending standards as a return to more normal conditions following a period of lax standards. But Bernanke said "it seems clear" that some creditworthy borrowers are having trouble getting credit, even when strong cash flow is compensating for a loss in collateral.
"The challenge ahead for lenders will be to determine how to assess the credit quality of businesses in an uncertain and difficult economic environment," he said.
