Milken Institute
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Jumpstarting small-business lending
By: Milken Institute
October 19, 2010
Think of it as the "small-business recession."

That's how the Milken Institute's Kevin Klowden described California's current circumstances in a State of the State Conference panel on lending. While small businesses have driven past economic recoveries, a lack of credit is hindering their comeback this time around.

Maria de Lourdes Sobrino of Lulu's Dessert Corp. detailed how financing has been hard to come by not only during the recession but since 9/11. She has relied on alternative measures, including family loans and sharing space with a similar business. Sobrino said she doesn't see the same energy as in the 1990s, when she thought of her bankers as partners.

Credit cards and home equity are the two most important sources of financing for small businesses, Bank of America's Kathleen Sowa said, and both are less available because of the housing downturn and regulatory changes in the credit card industry. Sowa said lack of cash flow is the No. 1 reason loans are being rejected, and lower real estate values mean less collateral.

On the up side, Klowden pointed to provisions of the federal Small Business Jobs Act passed in September, and Sowa said BofA is hiring 1,000 small-business bankers nationwide over the next year. Sowa also mentioned the potential of community development financial institutions, which can lend in situations where other banks are prohibited, and the availability of state capital access programs.

Watch the video to see: Eric McAfee of McAfee Capital extol clean tech and how to find the next industrial clusters, John Mack III of Imperial Capital neatly summarize why big companies can find financing and small ones can't, and State Controller John Chiang detail the downstream consequences of the delayed state budget.


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