Bernanke: Boost Lending for Credit-Worthy Small Businesses

Despite some lenders claiming to be focusing on a small business’s cash flow and relying less on collateral values, credit-worthy business owners continue to have difficulties obtaining funds to stay afloat, Federal Reserve Chairman Ben Bernanke said today.

In a speech in Washington, D.C. that followed weeks of forums with small businesses across the nation, the Fed chairman summarized feedback and concluded lenders wary of bank examiners still need to do more to re-establish a pre-crisis flow of credit.

Bernanke said the Fed has worked with other regulators to develop inter-agency policies on maintaining a balance between banks and examiner requirements that would allow lenders to make more good loans.

“But, though some lenders said they were emphasizing cash flow and relying less on collateral values in evaluating creditworthiness, it seems clear that some creditworthy businesses – including some whose collateral has lost value but whose cash flows remain strong – have had difficulty obtaining the credit that they need to expand, and in some cases, even to continue operating,” Bernanke said.

He said the challenge ahead for lenders will be to determine how to assess the credit quality of businesses in “an uncertain and difficult economic environment.”

“It is in lenders’ interest, after all, to lend to creditworthy borrowers; ultimately, that’s how they earn their profits,” Bernanke said. “Regulators, for their part, need to continue to work with lenders to help them do all that they prudently can to meet the needs of creditworthy small businesses.”

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