NFIB: Small business lending continues to suffer from weak real estate market

Jessica SarterSmall Business Lending

The stubbornly slow pace of recovery in the U.S. real estate market may be holding back the rest of the economy as well. According to a report released last month by the National Federation of Independent Business' Research Foundation, the residual scourge of demand stemming from the housing bubble is limiting access to capital for small businesses and inhibiting their ability to grow.

The reason for this is simple: More than nine in 10 small businesses own some form of real estate, and with the housing crisis many of these firms lost significant amounts of collateral or suffered depreciated property values.

This contributed to a surge in demand for small business lending in 2011, with 57 percent of small companies claiming to have applied for credit from a financial institution, up from 9 percent in 2010. However, the number of borrowers who actually accessed these loans did not increase over the past three years, as large banks either tightened their standards or noted fewer qualified loan applicants.

"[Small businesses] haven't been able to borrow even if they needed to," William Dennis, NFIB senior research fellow, told Fox Business. "Some don't want to, but when you see everything go down the tubes or take a real hit, you aren't eager to go out and invest."

Dennis pointed out that consumers and business owners alike have suffered decaying credit as a result of the real estate market and its wider impact on the economy. And this trend will remain until lending guidelines are changed.

"People don't understand the magnitude of the market downturn, and how far reaching it is," Dennis added.