Small Business Loans Still Declining
Small business loans are defined by the SBA as loans under $1 million dollars. The number of these small business loans have also continued their long-term decline over the first half of 2011. At the same time, loans to large and medium-size businesses increased. Unfortunately, it appears that access to money for many small businesses is still like finding the Holy Grail.
This information is from the latest Quarterly Lending Bulletin published by the SBA a few days ago.
This problem could become an even larger stumbling block to future economic growth if demand for goods and services from small businesses increases suddenly and those small businesses have no resources to expand their capabilities. Apparently no one is thinking about this possibility.
Although it is too late for many small businesses (who are gone), there are still many of those left, asking the question; “Now that the banks and big businesses are bailed out, when are small businesses going to be bailed out?”
Apparently bailouts work well, according to the latest news from The NY Times:
- Wells Fargo just posted a 21% rise in it’s third-quarter earnings—$4.1 Billion.
- Citigroup reported a third-quarter rise in earnings of 74% —$3.8 Billion. This is the seventh-straight quarterly rise in profits for Citigroup.
Couple the bank’s rise in profits with the auto industry’s rise in profits and it becomes obvious that bailouts work for big business. Too bad the government only wants to take from small business.
Could it be because there is a dearth of small business experience in Washington? Obama’s Cabinet contains the lowest number of private sector people since records started with Teddy Roosevelt (Forbes).
Worse yet–the vast majority of lawmakers in Washington are “professional bureaucrats” who wouldn’t know how to run a small business if there life depended on it.
What do you think this scenario holds for your small business?
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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.
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?
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