Small business credit and the real estate market: How linked are they?

Demand for credit among small businesses has risen markedly since the beginning of the recession. While lending activity has begun to improve, a new study by the National Federation of Independent Business suggests the market may be intricately tied to the ailed housing market. The NFIB points out a few reasons why the small business sector is tied to the real estate market. For one, a large majority of small companies own some form of real estate. Also, the construction industry tends to be dominated by small businesses, and these firms often finance business investments through property holdings. Furthermore, as the impact on housing starts has not really been measured, it has risen uncertainty and hindered entrepreneurial activity. "The many fruitless attempts by policymakers to understand and improve the credit market for small businesses are due to the fact that they have thus far failed to adequately address the root causes of the economic crisis – lost confidence and uncertainty, and the housing crisis," said William Dennis, NFIB senior research fellow and report author. Small business owners should expect tepid economic improvement and tight credit decisions in the small business sector until a workable solution is achieved, Dennis added.