The housing slump has had a detrimental effect on small business financing, according to new analysis from The Wall Street Journal. The decline in the value of homes (which many business owners use as collateral for loans and lines of credit) has wiped out $24.5 billion in potential credit for small and midsize businesses.

The problem began during the housing boom, when more and more SMB owners were using their homes as collateral:

Between 2000 and 2007, the percentage of small-business owners who used their homes as collateral on business loans or took home-equity loans to finance their businesses rose to 25.4% from 19.5%, according to an analysis of data collected by Barlow Research.

And small business owners were far more likely than non-owners to use their homes as collateral for home-equity lines of credit, the article says. The result? A disproportionate effect for small and midsize businesses versus the general population when the boom went bust. With the decline in home prices, many SMB owners are still unable to get the working capital they need to keep up with day-to-day operations or fuel growth.

Yet another contributor to the working capital “perfect storm” that hit small and midsize businesses so hard in 2008, and continues to this day.

Similar Posts:

Share