Small Business–Caught in the Middle
I posted about this subject before, but I thought it would be a good idea to see if anything has changed since then. Apparently it has, but not for the good of small business.
“…community banks have plenty of money to loan, but thanks to increased regulatory scrutiny, all banks–even those that had no part in the subprime mess–are being forced to tighten their lending standards and are therefore narrowing the range of acceptable borrowers.”
–Paul Merski, Chief economist, and Director of federal tax policy for Independent Community Bankers of America“We want to lend, but the regulators are flat-out telling us, ‘Get your capital up.’ Then there’s Congress telling you to, ‘lend it all out.”
–Greg Melvin, Board member of FNBCorp, a PA based bank that received $100 million in federal bailout funds.“The left hand has the banker by the throat, saying ‘We want your ratios adjusted to compensate for diminishing assets,’ while the other hand is saying ‘we need you to start lending.’ They’re coming from different directions.”
–Curtis Cummings, CEO of Alan Jeskey Builders of Las Vegas
Well, as is typical of anything the U.S. government is involved in, the left hand doesn’t know what the right hand is doing–and small business is caught in the middle.
Hundreds (thousands?) of small businesses are closing every day–putting more and more people out of work–because they do not have the financial resources to see them through this recession.
Putting cash in the hands of consumers who are supposed to spend it in businesses that no longer exist doesn’t make much sense.
Small businesses need access to operating capital to keep their business viable until the economy turns around. The banks have the money to loan to deserving businesses, and the willingness to loan it, but the federal government is telling them they cannot loan the money out.
Doesn’t make much sense to me–does it to you?
How Bad Off is Our Banking System?
For some reason, the mainstream media never made much mention (at least I never saw or heard it) of how close we came to a total collapse of our banking system and the world economy as well.
Listen to what Rep. Paul Kanjorski (D-Pennsylvania) told an interviewer on C-Span recently. It doesn’t get frightening until about 2:24 into the video.
Maybe we were too harsh in our criticism of Secretary Paulson when he changed courses when spending the bank bailout money. We also may be too harsh in criticizing Secretary Geithner when he said it would take a lot of time, and a lot of money to get us out of this mess. It appears the economic crisis was-and is-much more serious than we thought.
I just wish government would tell it to us straight and give us some detailed assurances that they know what the problems are and that they know how to correct them–and what it might cost. Hopefully President Obama and Secretary Geithner will be doing that shortly. The American public needs to know just how bad things are, and what it is going to take to correct our economic problems. If it is going to take $3 trillion, tell us now.
No More Credit For Small Business?
A few weeks ago, I wrote a post saying there was not a credit crunch for small businesses (businesses under 500 employees), and that in fact, the commercial and industrial loans from banks were up through mid-October. Furthermore, they had been consistently rising since September 2007. This information came from two economists who are consultants to regional Federal Reserve Banks. I think the information was sound.
However, I just read an article in the current issue of Entrepreneur magazine stating that 65% of senior bank loan officers reported that they recently tightened standards for small businesses seeking loans. This did not match what I had previously understood, so I called a banker I know who deals primarily with small businesses, and was told the federal bank regulators were insisting that the bank change the way it does business.
This came from a sound bank that has been dealing primarily with small businesses for decades. In fact, most local and regional banks were not a part of the financial debacle on Wall Street at all. Unfortunately, this banker was telling me that the federal government is now calling the shots on bank lending policy everywhere. No wonder the number of senior loan officers tightening small business loans is at a record level—it’s not the banks, it’s the federal government.
The biggest problem with this is that, it is small business that will lead the U.S. out of recession. Big business has proven many times over that they cannot improve a flagging economy…they are followers, not leaders. During the last downturn when almost 3 million workers were layed off in 2002, small businesses created over a million new jobs in 2003, and had almost all the 3 million unemployed back to work by the end of 2004—while big business was still downsizing. It would be another three years before big business even replaced the jobs lost in 2002 and 2003. We can expect similar (or worse) performance from big business this time around.
Here are my suggestions for stopping rampant unemployment and starting a recovery of our business sector:
- Have the government stop thwarting the growth of small business. It is not the small businesses that created our recession…it was the greed and incompetence of big business. Let the local and regional banks do their jobs just as they always have, so small business can begin to grow again.
- Remove unnecessary government regulations from small businesses. Small businesses spend 67% more per employee on tax compliance than big businesses do. Sarbanes-Oxley was established to avoid another Enron—it also crippled the growth of many small businesses.
- Offer incentives to start and grow small businesses. Small businesses hire 40 percent of high tech workers (scientists, engineers, computer workers), so why not encourage more small businesses.
Letting the federal government control all banking will only lengthen the recession…if not drive our economy into depression. Local and regional banks are what sustain the growth of small businesses…the same small businesses that will lead the U.S. out of its financial crisis. Let us not allow the government to see problems where none existed—they always come in and, “…hunt mice with a cannon.”
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