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Main Street Businesses Aren't Cheering Low Interest Rates

As the Federal Reserve wraps up its two-day meeting and investors search for clues about future interest rates, one business group won't be on the edge of its seats: Main Street businesses. Low interest rates and an improving overall economy, on the surface, should lure businesses to borrow and spend. But gains in new jobs and consumer confidence are being overshadowed by tighter lending conditions. Data and experiences of small-business owners instead point to small businesses largely still on the fence about accessing capital to generate growth and add jobs. Business owners broadly are more worried about speed bumps like red tape and taxes—not access to capital.

In the latest optimism index reading from the National Federation of Independent Business, only 6 percent of business owners said all their credit needs were not met—up 2 points from the historic low. Plus, only 2 percent reported financing was their top business issue compared with 21 percent who cited taxes, 22 percent who pointed to regulations and red tape, and 14 percent who cited weak sales. "Interest rates are low, but prospects for putting borrowed money profitably to work are not great and so loan demand remains weak among small-business owners," the NFIB said in a statement. And overall, capital spending remains in "replacement mode," not expansion mode. U.S. Small Business Administration loans, meanwhile, have been recovering steadily. SBA loans for 2014, through the end of September, totaled $19.2 billion, up from 2012 and 2013 levels, but on par with $19.6 billion in loans recorded in 2011. Three years after the global economic crisis, pent-up demand pushed entrepreneurs to seek capital for needed repairs and replacement of equipment. SBA loans are government backed and available through commercial lenders, which use their own criteria to assess creditworthiness and extend credit, while abiding by SBA guidelines.

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