Discuss critically the future of small business credit and its regulation - Essay Example

Its backed loan threshold was increased from a maximum of US $ 2 million to US $ 5 million in 2008 by President Obama to support the cause of small businesses. Small businesses have really suffered in their need to access loans especially during the recession that happened in America and that extensively affected the rest of the industrialized world between December 2007 and June 2008. This gravely interfered with the ability of small business to access credit since the recession was mainly caused by reckless lending by rogue banks mostly to the real estate industry.

The loans were poorly assessed for risks involved and there were many cases of over-inflated asset prices that led to a speculative bubble which was marketed around the world. The bubble did burst and thus loan losses set in, leading to the recession. This paper explores the options left open to small businesses in a world in which credit has become decreasingly available and whether they still stand a chance of getting loans sustainably in the future. The paper also explores other channels of credit open outside the normal formal ones such as banks and government lending that may assist small businesses into the future.

The viability of these alternatives is also closely examined. A small business can be defined as a privately owned and operated enterprise with relatively few employees1. According to the Small Business Investment Act of 1958, a small business in the United States consists of 500 or fewer employees. The number of employees is 50 or below in the European Union. Generally speaking, any business organization that is privately owned and has few or no branches with less than 500 workers is a small business2.

Despite their small size and relatively small scale operations, the contribution of small business towards national economic development cannot be gainsaid. Small businesses provide 64% of all national employment3. This is a figure that