Mon 14 Sep 2009
The state of the economy has frozen plans for many people and businesses. Setbacks have become commonplace, and individuals and businesses have been forced to wait for the economy to rebound. Thankfully, there is some good news for seekers of small business loans! The market appears to have made a recovery into figures just shy of the numbers seen before the recession, and experts are saying the resurgence is largely unrelated to government programs designed to produce such results.
Before the recession, many small business loans given by banks were quickly sold to investors in bundles known as "asset backed securities" (ABS) on what is known as the "secondary market." While small business loans are a relatively low risk investment, a problem arose when they were regularly bundled with mortgages and other loan types. When the housing crisis hit, the bottom fell out of the ABS market, which is why lending for small businesses slowed down quickly.
The government sprang in to action with a $200 billion plan to subsidize incentives for investors to buy up asset-backed securities. The only problem for small business loans was that investors were primarily interested in auto and credit card loans, leaving small business loans with a very small piece of the proverbial pie. Small business loans are typically just not as attractive because they don't provide as large of a return.
Today's Small Business Credit Market
Even though the government plan was only helping small business loans minimally, the market still has seen a nice recovery. One reason is obviously that the credit markets have begun to stabilize. Another is that new investors are starting to participate that have a less classical view of the marketplace. This is music to the ears of potential loan recipients.
Banks still aren't handing out money the way they did previously. A loan applicant is still bound to face a lot of resistance, but the recovery of the secondary market should be something that will grease the wheels in moving forward. Maybe you won't have to put your dreams on the back burner for as long as you thought!