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Money, Money, Money

Everyone seems to be proclaiming that the recession is over and the light has appeared at the end of the tunnel. Certainly the stock market has priced a recovery into current equity trading. But in the world outside of Wall Street, an economic rebirth will only be measured by two standards: jobs and credit. We have previously discussed the impact of credit trends on franchise growth. Job growth is not a meaningful yardstick in terms of directly measuring franchising trends, but credit developments certainly are. Franchise growth depends on a dramatic improvement in the credit markets.
The International Franchise Association’s Smartbrief recently urged its franchisor readership to call and write their Senators “to build momentum to pass S. 2869 early in 2010.” The IFA writes that “Sens. Mary Landrieu, D-La., and Olympia Snowe, R-Maine, recently introduced S. 2869, the Small Business Job Creation and Access to Capital Act. President Obama and SBA Administrator Karen Mills have indicated strong support to extend SBA provisions of the American Recovery and Reinvestment Act and increase the maximum loan limits from $2 million to $5 million.” To read more on this, see the IFA website.

The expansion of this program is being accompanied by President Obama’s attempts to pressure the banking industry to give “third and fourth looks” to loan applications for small businesses that had been previously rejected. The Wall Street Journal reports that many banks are assuring the President that second-look programs will be implemented immediately or are already in place. Additionally, the article reports that several large banks are increasing their targets for small business lending for the coming year, including Bank of America, JP Morgan Chase and Wells Fargo.

However, talk is cheap. Despite the assurances, the Journal goes on to report that since April, Bank of America’s outstanding small business loans have decreased 5%, or $2.2 billion, while JP Morgan and Wells Fargo have also decreased small business lending by billions of dollars. This contraction occurred while these institutions were receiving huge injections of public funding.

Only time will tell if the banking industry will hold up its end of the bargain and what the net effect of any increased lending efforts will be. As of now, the flow of credit to the small business world has not improved.

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