Bernanke has been lecturing banks about the need to start loaning to small businesses. But my question would be -- should small businesses be borrowing money?
There is a recent article about how some of the smaller, regional banks are having trouble paying back the Tarp money. Who'd have thunk? Borrowing money and having to pay it back only added to the amount of payments they have to make every month?
I realize that there are seasonal type businesses (though even those should probably strive to save up enough cash to pay for the seasonal swings themselves) but the main reason that I ever borrowed money from a bank was to grow my businesses.
O.K. I can understand how the government might want 'growth'. But borrowing for growth is another word for RISK, in my opinion. Living within the current parameters of your business would seem a wiser choice right now.
If you have to borrow money just to pay the bills, you're already in trouble and borrowing will only compound your problem.
I'm not an absolutist about this. I can come up with plenty of scenarios where loaning to small business would be a good thing -- both for the business and for the economy. I can even see loaning small business money just to tide them over until things improve. It would probably be much more efficient for everyone to keep already operating businesses alive than to have to start all over from scratch.
But as a small business, I'm trying to avoid adding any more payments to my monthly overhead, especially payments that involve compound interest.
Of course, if everyone thinks this way, we're probably looking at deflation for a long time to come.
So -- I'll be prudent.
You other guys borrow the money.
2 days ago