Why Banks Won't Lend

Interest rates are low, but many businesses can't get loans. Why? Banks blame regulation, but another reason is that they have found an easier way to make profits.

GREGORY O'DANIEL WAS READY TO play a role in getting the economy back on the road to recovery. The Pennsylvania businessman wanted to lease new machinery and hire a dozen more employees so that his two-year-old firm, Tempco USA, could boost its production of cosmetic cotton pads and facial tissues. But O'Daniel needed financing to do that, so he went to his local bank for a $300,000 line of credit. His company has an unblemished credit history and has been ringing up $600,000 in monthly sales to such customers as Wal-Mart and K Mart. Yet the bank turned him down on...

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