The subprime mortgage meltdown is affecting other segments of the economy. Not only are consumers with less than perfect credit harmed by the tightening of lending standards, but small businesses are feeling a credit pinch as well. Small businesses rely upon lending institutions to expand or simply stay afloat. The Federal Reserve issued a report recently acknowledging that approximately one third of banks in the United States had tightened their lending standards for small business loans.
The National Small Business Association conducted an online poll several weeks ago and learned that more than half of the respondents claimed that their business had been impacted by the credit crunch. Even the Small Business Adminstration, which guarantees numerous business loans, has experienced a 15% decline in the number of business loans which are guaranteed through its principal loan program, according to a report by the American Bankruptcy Institute.
The lack of adequate lending standards in the subprime mortgage market which helped create a climate of greed and overreaching by lenders and mortgage brokers is continuing to complicate lending to other segments of our economy. As lenders retreat from losses in the subprime market, they attempt to call in other investments to assure their own liquidity. The overall effect is a contraction in the lending markets generally, notwithstanding the Federal Reserve's recent efforts to infuse more capital in lending institutions on a short term basis. Small businesses currently find themselves with few remedies to alleviate their credit needs.
If you are a small business owner who is experiencing short term cash flow problems of a serious nature, but believe your business can recover, if provided capital on a timely basis, your business might benefit from a reorganization bankruptcy (Chapters 11, 12, or 13). Reorganization bankruptcies can stop immediate creditor collection efforts and give a business time to refinance its debt on terms approved by the Bankruptcy Court, thereby saving the business and benefitting creditors generally.