The confusing status of small business lending

Today's Wall Street Journal has a story on the small business credit crunch - Bailout Missed Main Street, New Report Says:

Government funding to U.S. banks has done little to ease the credit crunch for small businesses--and the situation doesn't seem to be improving, according to a new report.
The value of large banks' loans to small businesses shrank 9% between 2008 and 2009, more than double the 4.1% drop for overall lending, said a report released Thursday by the Congressional Oversight Panel, a group set up to oversee funds allocated by the federal government's Troubled Asset Relief Program.

However, here is what the Economist's story today (Jobs and businesses: The perils of being small) says on using TARP funds for small business:

The fund may, however, turn out to be unnecessary. In the past month there have been signs that things are starting to turn round. Commercial and industrial loans by banks shrank by 24% between October 2008 and March, but have levelled off since then, and Fed surveys have found that for the first time since 2007 banks are easing standards for business loans.

So - is the glass half full or half empty?

In any case, we need some alternative mechanisms to fund innovation in small and medium size businesses. That is why I continue to advocate for the use of intangible assets as collateral for business loans (see our reports and articles
"Intangible Assets in Capital Markets", "Intangible Assets: Innovative Financing for Innovation" and Maximizing Intellectual Property and Intangible Assets: Case Studies in Intangible Asset Finance).

As we noted before, this is not some exotic new financial vehicles but a use of traditional financial techniques in new ways. The Senate is now debating a financial reform bill. As I noted over a year ago, we must proactively deal with the issue of intangible assets. Intangibles are a major part of the wealth and the wealth generating capacities of companies and nations. To continue a financial system that simply ignores them is bordering on folly.

It is probably too late for this legislation to included the steps I recommended last year. But maybe they should at least included something -- like a study or report -- on the potential for using intangibles as collateral for small business loans. Such a study would be useful not only to open up the opportunities, but also to alert us to any dangers. After all, shouldn't the ultimate goal of the legislation be to prevent future problems? And it would help fill up the rest of that half full/half empty glass.