By YANAN CHEN
Capital News Service
LANSING—Michigan wants to rely on small businesses to rebuild its economy, but since the financial crisis, it is much harder for small businesses to borrow from banks, according to a new Michigan State University study.
The report by J.D. Snyder at the MSU Center for Community and Economic Development showed that the number of small business loans under $100,000 dropped nearly 20 percent between 2007 and 2010 in Northern Lower Michigan.
Snyder said although the study looked at a 21-county region, it’s relevant to all rural areas in the state.
Startup companies and small businesses have suffered the most from reduced access to credit because they rely on loans to hire people and expand, he said.
Michael Rogers, vice president for communications at the Small Business Association of Michigan, said it is difficult for some small businesses to borrow money, so the association provides information about loans.
“We give them some magazines and websites to make them familiar with how to apply,” Rogers said, “and we also talk with the credit union industry and bank industry and hope they can increase the chances for small businesses.”
He said the association encourages small business to apply for loans and wants banks to simplify the application process and reduce paperwork.
Sridhar Sundaram, a finance professor at Grand Valley State University, said, “Part of what happened in 2008 was the economy went down and business became more risky, especially small business which is exposed to lower revenues.”
When talking about banks tightening the restrictions on loans, he said, “Banks are under pressure themselves.”
Sundaram said banks suddenly found themselves holding bad loans because the value of real estate went down and owners could not afford their loan payments.
On the one hand, banks saw some of loans were not being paid so they were under pressure to tighten the standards, he said.
On the other hand, banks are looking to see how they can protect their loans.
“There should be more funds available for small business,” he said. “The only solution for developing the small business while preventing banks from going back into crisis is that either government or other groups guarantee the funds that the banks gave to small businesses.
“It is a difficult and controversial program because it is risky,” Sundaram said.
The U.S. Small Business Administration (SBA) provides loan guarantees.
Allen Cook, an assistant district director at the SBA in Detroit, said the agency plays an important role for people who want to finance or grow their business. SBA provides a guarantee to banks or credit unions to show the small business will repay the loan as promised.
Cook said SBA has several loan programs.
• 7(a) program: It provides financial help for businesses that handle exports to foreign countries, operate in rural areas and meet other requirements.
• Microloan program: It provides small, short-term loans to small businesses.
• 504 program: It encourages the development of community-based small businesses.
Michigan also has business resource centers in Macomb, Jackson, Alpena, Grand Traverse and Marquette counties that aim to help small businesses get more access to loans.