Bailout to Benefit Small Businesses
Cash-strapped consumers who are cutting back on spending? Check. Rising commodity costs? Check. Stratospheric energy prices? Check.
Small businesses have been hit with a triple whammy of challenges this year. Now comes what might be the biggest blow of all: traumatized credit markets.
It couldn't come at a worse time. Just when business owners are most in need of loans to help them survive slowing sales and rising prices, the meltdown of banks such as Lehman Brothers (LEH) and Washington Mutual (WM) have made other institutions wary of lending to anyone, no matter how good their credit.
Enter the government's much-debated bailout plan. Throughout all the haggling in Washington, both political parties agree on the basic goal: buying up the nearly worthless mortgage-backed securities clogging the financial system.The big question: Will it help small businesses? According to an August survey by the National Small Business Association, two-thirds of its members said they had been affected by the credit crunch, up from 55%in February. Nearly a third of the small-business owners surveyed said terms on their outstanding bank loans had become less favorable in the past year. The Discover Small Business Watch, a monthly survey of 1,000 small-business owners commissioned by the business-card unit of Discover, recently found that 73% think economic conditions in the U.S. are getting worse. Almost three-quarters of those who had sought loans said it's gotten harder to borrow money. Even banks that aren't turning over their books to government regulators have gotten jittery. This week, the rate that banks charge one another for short-term loans (the Libor, or London interbank offered rate) shot to its highest level ever. That means banks are holding off on lending to one another -- and, therefore, less willing to lend to businesses and homeowners.
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