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News Link • Economy - Economics USA

SBA Lending Cliff Dives in June, Boding Ill for Employment

In June, 29% of small business owners said they believe the overall economy is getting better, falling from 35% in May. Meanwhile, 51% said the economy is getting worse, steady from the previous month, and 16% see the economy as the same, up from 12% in May. Their concern over cash flow management is well founded. The Financial Times reports tonight that small businesses are paying the highest risk spreads on record: The Fed’s data show that in early May interest rates on small commercial and industrial loans, on average worth about $500,000, were 3½ per cent higher than the federal funds rate, the widest gap since the series began in 1986. Yves here. While all-in borrowing rates may be cheap by historical standards, the high spreads suggest strongly that banks are also restricting credit (high spreads and high turn-down rates go together). Reader Don B pointed out a New York Times business blog post that discussed how Small Business Association loans fell sharply in June as provisions to make programs more attractive to both borrowers and banks expired:

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