Today’s Economic Environment and the Credit Markets


Over the past six months, more and more small and medium sized business owners and startup entrepreneurs have come to with the same question: Are banks still lending and can I still obtain credit/investor financing given today’s economic environment? In short, the answer is YES.


First, of course, the legal disclaimer


Please note that the information in this article is not to be used as consulting, accounting, or legal advice. The following information is provided with the understanding that this article is not a substitute for professional advice, and is merely for informational purposes. is not responsible for the use of any information contained below or for the factual accuracy of any statements made below.


The Article


It is extremely important to note that banks are in the business of lending money. Banks earn income from loans in two different ways. First, they earn income from the closing of the loan, which often involves upfront fees (or points). Second, they earn an interest rate spread on the amount of interest you pay to the bank minus the interest they pay to their depositors. Banks are in the business of lending money, and despite the current economic climate, many small business owners and entrepreneurs are obtaining the capital they need to start and expand their businesses.


One of the most important things to keep in mind is that SBA loans and other small business lending programs are backed by the US federal government. As such, banks actively seek to finance these projects as Uncle Sam provides an 85% guarantee to the bank on the principal amount of the loan (in most instances). As such, the risk for the SBA lending bank is minimal as in the event of a loan default, they are substantially reimbursed for their loss. 


Without a doubt, all of us have concerns about the economy. There has not been a day over the last year where concerns regarding rising energy costs, inflation, falling housing prices, and the issues relating to the credit markets have not been addressed by the news and our elected officials. Recently, Congress and the President enacted a law that will provide the banking system with $700 billion of loan purchases so that banks and finance companies can resume normal business operations. Within two weeks, the passing of this law has allowed many important lending rates to fall, and although it will take time to fully come into fruition; this law will ease the issues regarding the credit markets both domestically and internationally.

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