ProfitWise News and Views: December 2010

Addressing the Financing Needs of Small Businesses in the Seventh Federal Reserve District
Last Updated: 12/23/10

Addressing the Financing Needs of Small Businesses is a Federal Reserve System initiative designed to inform policymakers on the issues that restrict the flow of credit and opportunities to improve the flow of credit to small businesses. A widely held view among policymakers and other observers is that economic recovery and prospects for job growth will falter if small businesses cannot meet payroll, pay suppliers and invest in innovation and expansion.

As part of this national initiative, the Community Development division of the Federal Reserve Bank of Chicago held meetings in Davenport, Iowa; Indianapolis, Indiana; Milwaukee, Wisconsin; Detroit, Michigan; and Chicago, Illinois. These meetings highlighted the challenges banks face in providing credit to small businesses and the challenges that small businesses face in financing their operations and investing in future growth.

The flow of credit to small businesses from commercial banks declined dramatically through the financial crisis and recession. Policymakers at every level face the challenge of identifying the most efficient measures and programs for promoting small business development and job growth. An informed discussion about these policies depends on a greater understanding of the dynamics of both the supply of and demand for credit. That discussion also depends on knowledge of the programs and interventions that do work well, that do not work (as well) and that are the most promising emerging programs and policies.