Since the credit crisis in September 2008, home equity loans have declined – little surprise there. The steepness of the decline, however, is a bit astonishing. In a Dec. 25th article, AP details the 87% drop in loans in 2009 compared with loans in 2006, when the housing market was booming.
A lot of kitchens and baths are not getting remodeled, garages are not being built, college educations are not being funded. The reduction in remodeling projects has dealt a blow to the construction industry but the sharp reduction in home equity lending has a wider impact on many varieties of small businesses. Home Equity loans provide the start up funds for new businesses and can provide a more cost effective way for small businesses to build seasonal inventories. In a July article, CNN looked at this aspect of the credit crunch.
Small businesses, not the mega corporations or the financial bank giants, create the majority of new jobs in this country. Unemployed people sap the resources of local, state and federal government. Employed people contribute to those resources with payroll and income taxes, as well as sales taxes. It would be good public policy to implement an incentive program to encourage private banks to loan to small businesses.