Outside the Box: Easing this bank lending rule could spur small business growth

Small firms and startups are often referred to as the “engine” of the U.S. economy because of their ability to create new jobs. For example, firms with fewer than 500 employees accounted for 63% of net new U.S. jobs created between 1992 and 2013.

Yet despite their importance to the economy, small firms often face difficulties accessing bank financing. These firms are typically opaque — that is, they don’t attract media or analyst attention, or produce lengthy financial reports. As a result, banks cannot rely on public information to assess loan applications from small firms. Instead, the firms must provide the bank with information demonstrating their creditworthiness.

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