Small Companies, Big Credit Problems

How banks’ reluctance to make small-business loans is a major driver of sluggish recovery, and what to do about it.

By Matthew Yglesias | Posted Monday, Jan. 9, 2012, at 6:59 PM ET

Nobody will be surprised to learn that the past few years have been tough for small business. They’ve been tough for everyone, after all. But interesting research finalized in December from economists Burcu Duygan-Bump, Alexey Levkov, and Judit Montoriol-Garriga published by the Federal Reserve Bank of Boston indicates that the interplay of small business and the banking crisis may have played a special role in the recession. In particular, a tightening of credit standards during the high point of the fiscal crunch seems to have disproportionately impacted small firms and is continuing to hold them back during the recession.