“Let’s put it this way: If you know you’re going to get laughed at in the face, why ask?” Deion said. “People are using home-equity loans and their credit cards ... and they’re paying 13 percent [interest]. The reason is it’s easier to get the money. … It’s the path of least resistance.”
SBA lending in Rhode Island has declined, Deion said, in large part because state lawmakers in 2005 repealed a tax credit that reimbursed small-business owners for certain loan fees. Also, Congress a few years ago discontinued its subsidies for the SBA program, which further eliminated incentives to participate, he said.
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A Federal Reserve report released in February found that a third of banks in the country had tightened their lending standards for small-business loans.
To make matters worse, small-business owners who have been using home-equity lines to finance their businesses, Deion said, now find that their houses are worth less — so some have little or no equity to borrow against. Business owners who relied on credit cards are also getting squeezed, he said, since credit-card companies begin to hike rates in unison whenever a cardholder misses a payment on one credit card. The practice of creating a “universal default rate,” he said, began about 1 ½ years ago.
Since it is the smaller businesses that have so much growth opportunities this could amplify the current economic situation.
