We are in the kind of economic environment that activates banks’ natural instinct to tighten credit. But for small businesses, limiting their access to capital when they need it most can create a negative feedback loop – as they struggle, and in some cases even shutter, the economy further weakens, which makes banks even more cautious.
Bottom line: The country simply cannot afford for financial services providers to stop lending to small business. But this doesn’t mean that banks and credit unions need to take unnecessary credit risks as an act of public service.
There’s already a playbook for safely extending the financial lifeline small businesses so desperately need. We can look to important lessons from the financial crisis of 2008 to help community banks provide the support that will help communities survive the hardship and re-emerge in a new normal.