Economic uncertainty continues to stall bank lending

6/27/2011

According to a quarterly survey by the National Federation of Independent Business, one in four small business owners report weak sales as their most significant problem.

This has been a recurring issue in America since the recession hit. As long as demand for products remains weak, small business owners will continue to hesitate to borrow from banks, despite many financial institutions' willingness to provide funds.

CNN Money notes that because smaller businesses generate as much as 80 percent of new hires, community banks are feeling pressure to loan now or risk being acquired by larger institutions.

"Some will be cost cutting as a means to address the lack of new income coming in," Keith Leggett, senior economist and vice president of the American Bankers Association. "You may also find that some will decide that it may be better to sell themselves to larger firms in this environment."

The news source adds that demand for new loans dropped for banks of all sizes during the first quarter of 2011. Community banks saw a dip of 2 percent - or $17.3 billion below the previous quarter's total, according to data from the Federal Deposit Insurance Corporation.