More Bad News for Small Businesses
A few days ago, MarketWatch published an article titled, “Banks cutting back on loans to businesses.” Here is a quote from that article that I find most disturbing:
U.S. banks are reducing their lending at the fastest rate on record, tightening the credit squeeze and threatening to leave many otherwise viable businesses unable to borrow money to expand their businesses, meet their payrolls, or refinance maturing debts.
To counter this, President Obama just presented his plan for helping small businesses obtain loans. The President’s plan calls for money to be made available to small banks from the TARP pool at a low interest rate, and the ceiling for the SBA’s most popular programs to be raised from $2 million to $5 million.
Unfortunately, the changes to the SBA programs require Congressional action, and that could take a long time. Moreover, the money from the TARP pool comes with strings attached, and here is what Cam Fine, President of the Independent Community Bankers of America trade association had to say:
…family-owned banks are not going to want to subject themselves to compensation restrictions imposed by TARP, because it is their own personal money that is the capital of the bank.
Even if banks do get more government money, are they going to loan it to struggling small businesses? According to an article in BusinessWeek, banks are putting much of their available capital into Treasury and other securities. As a result, loans and leases are taking a back seat. Also, banks are complaining that tighter regulation, plus a special assessment to replenish the FDIC, is affecting their ability to make loans.
So, what is a small business owner to do? Well, I’ve been in situations like this before, and, although not pleasant, they can be managed. Some banks are still lending to solid businesses that have a history of profitable operation, so polish up your “public” business plan and spend some time pitching your business to small banks. This is assuming, of course, that you are not already over-extended—remember; banks are not Venture Capitalists.
If your cash situation becomes critical, you will need to look for alternative sources of money, such as taking on a partner, looking for venture capital, or borrowing “hard” money. Alternative sources of money could also include personal resources, such as, home equity loans, family members, credit cards, selling assets (boats, RVs, motorcycles, cars, vacation cabins, etc.) and borrowing from friends.
If you have tried all of these things, and still cannot balance your cash flow, it may be necessary to sell a portion of your business, merge it with another, or cut it down to a manageable size.
Times are very difficult for some small businesses right now, and you may have to do things you likely never thought of when you started your business.
So, stay the course, be persistent, involve your employees and advisors, and don’t give up—you can weather this storm.
Confusion in Lending
I think it is safe to say that anytime the government gets involved in anything to do with business–confusion reigns supreme. The President made it clear in one of his recent addresses (review here) that he wanted banks to start lending, especially to small businesses.
However, yesterday, I read a column from the Associated Press that covered Congressional hearings on the conflict and confusion being experienced by banks. Here are some summarized excerpts from the article:
Regulators at a House hearing Wednesday heard complaints from small business owners, and others, who haven’t missed any payments, but are getting their credit lines deeply cut or yanked away… “There is actually a growing anger from these people,” said Rep Spencer Bachus of Alabama”… “The reduction or denial of credit to credit-worthy customers is occurring every day across America in about every town,” he said.
“The current bank regulatory climate is causing many community banks to unnecessarily restrict their lending activities,” said Michael Menzies, Chairman of the Independent Community Bankers or America. “Actions of bank field examiners are often unnecessarily putting constraints on community bank lending,” he said.
“Banks have to lend money to make money,” Timothy Long, senior deputy comptroller in the Office of the Comptroller of the Currency, told the hearing…Scott Polakoff, acting director of the Office of Thrift Supervision, said “…there is an element of truth in the bankers complaints [that examiners have been ordered to ‘crack down'].”
Bank examiners work for the Federal Deposit Insurance Corporation and the Treasury Department. Don’t tell me this is another boondoggle by Tim Geithner!
Will the political drama never end, so businesses can all get back to work and bring our economy back on track?
My Book
Any business crisis can be managed before it becomes fatal . . . Be Your Own Turnaround Manager tells you how. Click here for more information.