0 Comments | Telegraph – Herald; Dubuque, Iowa, Jul 13, 2010 | by Jeannine Aversa
WASHINGTON – Big companies are building up cash and are expected to report strong earnings starting this week. Not so for small businesses that can’t get loans – or hire freely until they do.
The gap helps explain why the economic rebound isn’t stronger and could even stall. Federal Reserve Chairman Ben Bernanke stepped up pressure Monday on banks to break the logjam and lend more to smaller firms, which employ at least half of American workers.
Small business owners are relying on personal credit cards or raiding retirement accounts to stay afloat, the Fed chairman said.
Bernanke and other regulators have urged banks for months to lend more to smaller companies. Lawmakers have complained that small businesses that want loans are having trouble getting them. Banks have countered by saying demand remains weak.
The Fed does have authority to create programs to increase lending, such as providing low-cost loans to banks. But economic conditions would probably have to weaken considerably before the Fed would propose such a move. One such program set up during the 2008 financial crisis was recently closed.
The Fed chief’s latest comments came as legislative efforts to spur small-business lending have languished, and as the recovery has lost momentum. Bernanke spoke at a Fed conference held to explore ways to loosen lending to small companies.
“Making credit accessible to sound small businesses is crucial to our economic recovery,” Bernanke said. “More must be done.”
Some small business leaders say they would hire more if only they had easier access to loans. One of them is Marilyn Landis, of Basic Business Concepts Inc. of Pittsburgh, which compiles financial documents for other small businesses.
Landis said even though she says she’s never missed a payment, she says her line of credit was cut about 18 months ago.
Nearly one-third of small business borrowers report difficulty arranging credit, accroding to the National Federation of Independent Businesses.
By contrast, big businesses, which start reporting their second- quarter earnings this week, have enjoyed easier access to loans and low interest rates.
Analysts expect companies in the Standard & Poor’s 500 to report a 42 percent jump in profit by one measure, S&P; says. For the current quarter, which ends Sept. 30, they expect a 31 percent rise.
The big companies also benefit from something available to fairly few small businesses: plenty of cash.
In March, cash at S&P; 500 companies hit a record $837 billion – about a year and a half’s worth of profits. And S&P; senior analyst Howard Silverblatt says he expects cash to rise to a new record for the April-to-June quarter when figures are released later this summer.
Yet even as the economy has improved, lending to small businesses has declined
small business bank accounts