Banks crimp small business lending

May 13, 2010 | By Jim Kim

Despite some flashy initiatives, such as a recent partnership announcement by Citigroup (NYSE: C), the banking industry as a whole has cut back severely on lending to small businesses. The Congressional Oversight Panel reports that the biggest Wall Street banks cut there small business lending by 9 percent in 2009. That seems to confirm the fears that the little guy will end up being the hardest hit by the financial crisis and recession.

"Big banks pulled back on everyone, but they pulled back harder on small businesses," Elizabeth Warren, the panel's chairwoman, told reporters. It's hard not to conclude that TARP has been a disappointment for many. "The biggest TARP (TARP news) program pumped billions in low-interest capital into banks, but did not require that banks lend that money back out," notes CNNMoney. The question is what happens from here. In a recession, small businesses are tough bets from a lending perspective. But now that things are picking up, will we see more banks loosen the spigots a bit?

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