The repercussions of the recession continue to impact the state governments across the U.S. In turn, small businesses are facing additional struggles.

Some programs offered by state governments to assist small businesses are at risk of elimination because of the governments’ enormous debt. The programs, which offer loans to business owners, are a necessity for many entrepreneurs who cannot receive credit from traditional banks because of the institutions’ post-crisis belt-tightening.

Governments Cutting Costs

Many state governments from coast to coast have mounting debt to deal with and fewer tax returns from which to draw revenue. Some of the nation’s most populous states, such as New York, California and Illinois are carrying the heaviest debt burdens, according to Forbes.

Some of the states that sponsored small business loan programs, such as Vermont, Massachusetts and California, have found that the well has all but dried up. The loans issued through these programs are typically co-sponsored by the states and private entities, but without the infusion of state funding, the programs might not be able to continue. One way states could find respite is through federal aid. The states under the heaviest debt burdens are looking to U.S. President Barack Obama for help shouldering their loads, but the president is running into problems passing his administration’s small business bill. The federal small business lending bill is currently stalled in Congress as many Republicans are opposed to putting more taxpayer money into fixing the economy.

Small Businesses Taking the Hit

Small businesses don’t have the same access to credit via standard banks and lenders that they did a few years ago. That might not be a huge issue if the government had the money to keep churning out loans.

Many banks have made loans tougher to take out after they lost money during the financial crisis and were rebuked by the government for their actions. Banks’ lending practices were much more — and perhaps too — relaxed over the past five to ten years, but the time of easy credit seems to have come and gone.

The lack of available credit hurts small business owners and the economy as a whole. It appears that the unemployment rate, hovering just below 10%, will remain high for the time being. Without access to loans, many small businesses either cannot continue to operate or cannot afford to hire additional help. Putting more money into programs that make loans available to small businesses could potentially result in an improved national employment situation.

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  • Tim Johnson

    Wrong- The characteristics of the borrower have changed. In a report being completed
    in California, preliminary results illustrate there is money to lend, specifically by
    non-bank revolving loan fund programs. The issue is that many small businesses
    specifically start-ups do not possess the appropriate collateral and equity positions
    and need to bring more to the table in order to offset the risk. There is money to loan
    in California, but little if any is going for debt consolidation and loans for growth
    require great collateral and cash positions.

  • Xcalibar

    You're wrong, the banks are not budging even if you have collateral. Then again, if you have collateral the banks consider safe you don't need a bank. The banks are not lending and they are collapsing the lines of credit that most small businesses had already established. Once the line of credit is reduced to what you owe, you have no room for growth or hiring or specualtion. If you want to stimulate growth force the banks that took TARP to lend or lose their FDIC protection. With three small businesses I will not buy large ticket items, I will not hire, and I will layoff if market trends continue with no end in sight. When the banks have no depositors, maybe they'll wake up or just ask for more taxpayer bailouts.