If so many big businesses want to say yes, then why are so many small businesses hearing no?
Published in News & Trends, Small Business;
“For political reasons, for marketing reasons, big banks clearly want to represent that they’re very friendly to small business,” says Ami Kassar, founder and CEO of Philadelphia-based MultiFunding, which helps small businesses find the best loans available to them. “But the data tells a different story.”
Though large banks say they’re increasing loans to small businesses, studies suggest there hasn’t been much improvement in the small-business lending climate. According to an October Federal Reserve survey, 89.3 percent of loan officers at large banks said credit standards for approving applications of small firms (defined as those with annual sales of less than $50 million) remained basically unchanged over the past three months.
And only a quarter of all businesses said their borrowing needs were completely satisfied in the last three months, according to the latest quarterly economic trends report from the National Federation of Independent Business, down from 36 percent in the two years before the recession.
Kassar’s own research tool, released last Friday, grades every FDIC-regulated bank in the nation based on their commitment to small-business lending, calculated by dividing their active loans to small businesses with balances of $1 million or less by their total domestic deposits. While the average bank in America uses 8 percent of its deposits to make small-business loans, Kassar found that of the nation’s 10 biggest banks, four used less than 3 percent of their deposits to make small-business loan and four used between 3 and 6 percent of their deposits. Only two of the banks — Branch Banking and Trust Company and U.S. Bank — used between 6 and 10 percent of their deposits for small-business lending.
Part of the disconnect small businesses are feeling is from the big banks’ new stringent credit policy — the difference between credit policies that existed prior to 2008 and 2009 and the policies now. Big banks are proactively reaching out to a different credit profile than they were before, and it’s absurd for them to deny that.
Regulators are fully acquiescent to banks not lending to small business. There’s clearly an element of political pressure, regulatory pressure. More than one bank that regulates will stand up and say they’re pushing banks to lend, but they really don’t want to see a bad loan hit the books. They don’t want to go through a bad credit cycle again, and so there’s a wink wink nudge nudge about urging banks [to lend to small businesses].
Bernard Baumohl, chief global economist of The Economic Outlook Group, an economic forecasting firm in Princeton, N.J., agrees there’s been a fundamental change in how big banks view risk. “There’s a lot big banks can lose. It’s a different climate for them.”That climate, according to Baumohl, includes the pressure to raise capital, repair their balance sheets and deal with the remnants of the financial crisis as they look toward a bleak 2012.
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