Confidence in the credit markets may be gaining momentum, as the numbers show that American consumers are borrowing again.
According to the Federal Reserve, the 11 month decrease in consumer borrowing has come to a halt this month. While analysts projected total consumer borrowing to drop by $9 billion dollars, actual borrowing on credit cards fell by $8.5 billion and other forms of borrowing, including loans, increased by $6.8 billion.
Students and small businesses are primarily causing this shift in borrowing trends. For these groups now is the time to borrow and take advantage of financial resources available to them.
The Federal Reserve in essence is the starting point for determining credit rates, as the Fed lends to banking institutions who then lend to consumers, such as small businesses. For this reason, the Fed issued a statement Wednesday in which it is detailed that banking institutions should focus on “prudent lending to creditworthy small business borrowers.”
The Fed’s statement shortly follows President Obama’s State of the Union address which promoted federal action to ease the financial burden on small business, and increase job opportunities in that market. It would seem that the country’s primary financial institution is following suit. Small businesses, be prepared to reap the benefits.
A cautionary overtone on the part of the Federal Reserve is such that smaller financial institutions are being advised not to worsen the financial downturn by denying credit to creditworthy businesses. “[The Federal reserve is] mindful of the harmful economic effects of an excessive tightening of credit availability in a downturn and are working … to ensure that supervisory policies and actions do not inadvertently curtail the availability of credit to sound small business borrowers,” the Fed said in a statement.
Other federal policies will loosen lending or promote tax cuts for students as well.
In his State of the Union address, Mr. Obama promised Americans that an increase in Pell Grants is underway. Unlike a consumer loan, any amount awarded through a Pell grant need not be repaid. Also promised is a $4,000 dollar tax cut for college students. At an average state university, this nearly covers an entire year’s tuition.
At the advisement of President Obama, the Senate will carry on the task of introducing a bill that will end student loan subsidy payments made to banks also. Instead, it is proposed that the costly subsidies be eliminated, and that tax money be redirected into student aid. Again, another win for college students looking to life their financial burdens.
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