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How Financing Trends Impact Entrepreneurship

Financial EfficiencySmall businesses come in myriad flavors–but capital is a constraint, on some level, for every one. Unfortunately for entrepreneurs, the mechanisms now in place to finance them are inadequate. To wit:

Trend No. 1: Lemming-like behavior by regional banks

Securitization (the slicing up of loans into pieces, each bearing a specific level of risk) clearly has its benefits, but not when investors as a whole underestimate–or ignore–those risks. Having rushed headlong into subprime lending, banks, and thereby their small-business customers, are now dearly paying the price.

Implications: Tighter credit terms–or none at all–for entrepreneurs. (For more, see “The Real Scoop On The Credit Crunch.”) We have already seen banks try to recoup their losses by increasing rates on credit cards.

This article originally appeared on Forbes.com.


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