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Falling home prices hurt small business credit

Dec 23, 2010 Brian Bradley

Falling home prices not only affect the wealth of an individual, but the real estate decline is also having an effect on business credit reports, writes Courtney Rubin for Inc. magazine. Rubin references a new report from the Federal Reserve Bank of Cleveland, which announced that devalued homes prevent entrepreneurs from accessing the credit they need. As a practice, many small business owners put up their homes as collateral for a loan. However, with home prices on the decline, entrepreneurs are finding tougher access to credit, hurting both the individual and local economies. "Decreased demand for credit, declining creditworthiness of small-business borrowers, an unwillingness of banks to lend money to small businesses, and tightened regulatory standards on bank loans have all been offered as explanations," Mark Schweitzer, the Cleveland Fed’s senior vice president and director of research, said in the report. Though nationwide housing sales figures climbed 5.6 percent in November, home values are still fluctuating. For example, home prices in the Atlanta metropolitan area fell for the sixth straight month and are down 16.2 percent for the year, while home prices have fallen 8 percent in the Phoenix metropolitan area this year.