Bankers continue to treat small businesses better than big ones as they tighten up on loan terms--but nevertheless, it's beginning to hurt. A close look at Federal Reserve data released last month shows that nearly 60% of all domestic banks tightened their standards on commercial and industrial loans to large and medium-size companies, while only 45% clamped down on small borrowers. That's odd, considering small companies are generally considered riskier.
Hold the champagne, though: Entrepreneurs haven't seen similar levels of tightening since 1990-91, which coincided with a disastrous credit crunch for small business. What's more, bankers are increasing their "spread"--the markup they charge on a loan over their own cost of funds--at a pace also not seen in a decade. Bankers say they're tightening up most on the riskiest loans, with the results showing up in demands for more collateral and stricter covenants. The result? Not surprisingly, the bankers say demand for loans among small companies is plunging.