It should be no surprise that getting a small business loan has been tougher than ever this year.  In fact, a recent report released by the Treasury Department, states that the top 22 bailed out banks that received the most funding from the Troubled Asset Relief Program(TARP), which include CitiGroup, Bank Of America, & AIG, have cut small business loans by $10.5 billion. 

The report covered six months from April of this year through September and saw that the average small business loan totals fell from $269 billion to $259 billion, a shocking 4%. What’s more shocking is that 3 out of the 22 banks, no longer help small businesses with loans, and another 15 have drastically cut the amount of loans they hand. Those changes were made in the 6 months of the survey.

Total lending by major TARP recipients has fallen as well. The report said that the total average loan fell from $4.35 trillion in April to $4.18 trillion in September. Total loan balances have fell on average 1 percent each month since then, with a $28 billion drop from August to September.

Many experts are saying that the effects of the small business loans are increasing to the rise of unemployment rates.  The most recent unemployment rate has hit a 10 year record high of 10.2%.

CNN notes that last month JPMorgan Chase had released  four new types of small business credit cards with interest rates reaching up to 30%.   Since then the company has cut other types of small business loans. This year, with loan programs through the Small Business Administration (SBA), JPMorgan Chase has reduced the number of loans they are handing out.  They roughly handed out 1,250 in the SBA fiscal year in 2009 which ended on September 30.  Compare that to 2008, when 6,100 loans were distributed to small businesses. 

While the global economy has reduced the number of  loans, companies are now turning and relying on credit cards to keep their small businesses afloat.  The National Small Business Association recently released the results of a survey and found that nearly 60% of small businesses have admitted to using a credit card for business capital within the past year , and 45% had taken out a bank loan.

Experts are saying that credit cards have always been a part at helping small businesses get started however other options are dwindling.

The CNN article says, “The number of small business loans for $100,000 to $1 million fell 23% in 2008, according to an SBA analysis released in May. But the number of loans under $100,000 rose 16%.”

“The data is not that precise,” said Charles Ou, who worked on the SBA survey. “That is the biggest problem.”  Ou believes most of that increase to due to the increase in credit card accounts.

One of the small business owners affected by the global economic meltdown is Charles Brooks.  Brooks owns Unique Construction, a 29 year old small construction company in Detroit.  He has also maxed out 11 business credit cards to keep his company open.

Detroit, which has been one of the hardest hit economic cities in the US, also has one of the highest unemployment rates in the entire country.  Because of this, no one is in need of Brooks’ services.  ”It is really, really, really slow in Detroit,” said Brooks. ”I have never seen it this bad.”

Brooks had applied for two small business loans, first in 2007 and again in 2008.  Unfortunately, neither of the applications were accepted.  He said that they had always had credit cards, but they had never really used them until after the loans were denied. “We just never really used them, they were just there.”  At the end of 2008, Brooks decided to start paying both bills and suppliers with the credit cards.

Brooks has downsized, going from 4 regular employees to now hiring subcontractors for when there is work.  Brooks isn’t sure what he needs to do anymore to keep his company running, other than pray. “We are praying for a better Detroit, a better world.”

The American Recovery and Reinvestment Act which was also recently pass has guaranteed $9 billion for new small business loans. However the new legislation will help improve the Small Business Administration’s program  allowing $44 billion a year for lending and investments for new and small businesses. 

The bill has many options for small business owners who didn’t get a bail out, according to Nydia Velázquez, chairman of the  House Small Business Committee. “Small businesses with tight profit margins don’t have the luxury of simply ‘tightening the belt.’ When money is short, they’re often forced to lay off workers. But with unemployment at 9.8 percent, we just can’t afford more losses. That’s why this bill delivers critical capital to new ventures.”

If the Act is passed through the Senate, loan maximums for small businesses would increase to $3 million for 7(a) loans, which covers most start-up business and existing small business.   A 504 loan, which is geared more towards larger businesses, in manufacturing or construction companies for example, that need to purchase real estate, machinery or to build brick-and-mortar facilities for expansion or modernization will go up to $25 million which is up dramatically from the previous $1.5 million offered.  The Act also encourages small local banks to reach out to small businesses and increases available loan sizes.

Rep. Anna G. Eshoo (D-California), voted in favor of the new bill, “As we work to emerge from this recession, it is essential that we support our small businesses, the backbone of our country’s jobs and economy, and its greatest source of innovation.  This legislation will give these businesses the lending they require to thrive.”

The bill still needs to be approved by the Senate, however, on the downside there is no estimated time for when the money will reach small business owners.