As federal and state officials struggle to deal with continued malaise in small-business lending, money from last year”™s small-business jobs bill began hitting the street.
Michigan and North Carolina received the first installments from the $1.5 billion State Small Business Credit Initiative, part of last fall”™s Small Business Jobs Act and intended to strengthen state programs that leverage private lending to help finance small businesses and manufacturers that are creditworthy but are not getting the loans they need to expand and create jobs.
Connecticut is to receive $13.3 million under the program at an unspecified date.
Increasing demand for loans
Recent formal and informal surveys by the Federal Reserve Bank of New York demonstrate that small-business lending remains a challenge.
Mid-sized and smaller banks in the tri-state area reported increased demand for commercial mortgages in the final six weeks of 2010, and steady demand for commercial and industrial loans, the Fed found. Demand for consumer loans and residential mortgages fell in the New York City area, however. While commercial financing demand was up, bank respondents reported continued tightening of credit standards amid increased delinquencies.
The Fed determined that 59 percent of businesses polled had attempted to access financing in 2010, with just half of them getting approved.
“In focus groups we heard repeatedly that regional businesses were having problems obtaining credit,” said Claire Kramer, a New York Fed analyst. “We found that cash flows are keys to success ”¦ Over two-thirds of the poll respondents saw declining sales and revenues over the last two years, which may help to explain why access is limited for this group.
“Personally I was surprised that experienced borrowers, who one would normally think would have an easier time getting access to credit because of previously established relationships, actually did not seem to have an advantage in securing credit,” Kramer added.
Impacting economic recovery
Banks are still working out bad loans on the books, according to James Smith, CEO of Waterbury-based Webster Financial Corp., who spoke to analysts in a January conference call.
“We”™re going to resolve credits and keep things moving, ”¦ it”™s just going to (depend) on where we are in negotiations on each of those, as to whether we get deals done or we”™ve exhausted all opportunities to try and collect,” Smith said. “We”™re not out of the woods totally, but there are certainly lots of good signs here to tell you that we”™re on the right way.”
At a mid-January forum on small-business lending sponsored by the Federal Deposit Insurance Corp., federal officials agreed small-business lending remains a problem and that is it beginning to have a significant impact on the longer-term prospects for the economic recovery.
“We have gone way past the normal washout of small businesses that get washed out in a recession and healthy capitalism,” said U.S. Sen. Mark Warner of Virginia. “We are cutting into businesses with long-term track records.”
”˜It is going to get better”™
Ben Bernanke, chairman of the Board of Governors of the Federal Reserve System, said the federal government should do everything it can to minimize regulatory burdens on the smaller banks that don”™t pose any kind of systemic risk. U.S. Sen. Max Baucus of Montana likewise blamed overzealous bank examiners, who he said are overly restrictive in evaluating credit decisions.
In mid-January, the FDIC created a toll-free hotline and website allowing small-business owners to register concerns about the availability of credit. The agency indicated it will respond to inquiries about policies and financial institutions it regulates, as well as make referrals to other governmental agencies where appropriate.
The hotline is operational Monday through Friday between 8 a.m. and 8 p.m. at 1-855-FDIC-BIZ (1-855-334-2249); the website can be accessed at www.fdic.gov/smallbusiness.
“A combination of factors have created issues and challenges for small businesses, but it is turning in terms of credit availability,” said Sheila Bair, FDIC chairman, in a prepared statement. “I think it is going to get better, and we”™re working to facilitate that ”¦ with our new hotline and website.”
One thing i believe the recession has taught many businesses owners is that a business can not strictly operate on credit like a corporation can. You need cash flow and you need to have a plan B in case a scenario does happen where you can’t secure financing.
-Larry
Kzoomarketing.com