A report by online credit marketplace Biz2Credit shows that since the beginning of the year, the nation”™s biggest lenders and community banks have been moving in the opposite direction in their handling of small-business loan applications.
Biz2Credit used data from its Small Business Lending Index for September, an analysis of 1,000 loan applications made through the company”™s website. The index showed that during September 45.1 percent of loan applications by small businesses to banks with less than $10 billion in assets were approved, while just 9.2 percent of applications to banks with more than $10 billion in assets were approved.
The striking gap in approval rates echoes concerns expressed by small-business owners about a supposed lack of credit, said Biz2Credit small-business finance expert Rohit Arora.
“What Biz2Credit is seeing is the credit markets are pretty challenging. (Small Business Administration) programs are doing well but they cannot support all the demand for credit,” he said.
The U.S. Small Business Administration supported $30.5 billion in lending to small businesses and startups during its 2011 fiscal year, which ended Sept. 30. That number far exceeded SBA lending from previous years, which amounted to $22.6 billion in 2010 and $17.9 billion in 2009, according to recent data from the SBA.
Arora did not have specific data on loan approval rates from prior to the recession, but said the biggest lenders were more liberal in approving credit applications from small businesses.
“Prior to the recession most of the bigger banks in the country were running very aggressive lines of credit,” Arora said.
The most pressing need for small businesses is not loans to expand but working lines of capital to support day-to-day operations, Arora said.
To that end, Wiley Harrison, president of White Plains-based consulting firm Business of Your Business L.L.C., said state government officials should consider offering banks incentives to loan to small businesses.
“Why can”™t we incentivize the banks to do what is necessary?” said Harrison, who also serves on the Mid-Hudson Regional Economic Development Council and on the executive committee of the Business Council of Westchester.
In the past six months, both the Business Council and the Westchester County Association ”“ which represent hundreds of local business owners between them ”“ have issued policy plans and initiatives aimed at lowering the cost of doing business in Westchester.
Harrison pointed to expenses including unemployment insurance, workers compensation and health insurance, saying all three need to be addressed in order to ease the pressure on small businesses.
Unemployment insurance often acts as a disincentive to hire, he said, because it penalizes companies that take a risk by hiring a new employee who might not pan out, with that employer”™s unemployment insurance fees rising as a result.
Similarly, Harrison said workers compensation is unnecessarily high for small businesses in Westchester. With many of the county”™s small businesses being in the services sector, “workers comp insurance for the potential of that person getting hurt doesn”™t match up.”
By compelling banks to increase their lending rate and by loosening regulations on businesses, Harrison said the added cash could help small-business owners turn around and hire additional employees.
“If I can reduce (those costs) by 10 percent, 15 percent, that”™s actual money that I can now use to maybe employ another person,” he said.
Westchester County Association President William M. Mooney said there needs to be a change in the culture surrounding business development in Westchester “into acceptance from denial.”
“People are not breaking down the doors to be here” like they had during the 1970s, when the majority of the county”™s office parks were constructed, Mooney added.
Mooney and WCA”™s executive director of economic development, Marissa Brett, said the organization is targeting a number of regulatory areas ”“ such as zoning laws ”“ that can be relaxed in order to facilitate new developments in Westchester and other parts of the state.
“Today we”™re at another point of evolution,” Brett said, pointing to increasing talk in commercial development circles of the potential for more mixed-use developments to be constructed.
However, in order for the county to expand its offering of affordable housing units that have access to the growing urban hubs and for retail developers to expand along areas such as the Platinum Mile, zoning laws such as the State Environmental Quality Review Act (SEQRA) must be interpreted with a mind toward businesses that are stretched thin financially.
“We have to accommodate that next wave of demand,” she said.
Mooney said the WCA would continue to work with local and state government officials to make the county more inviting for new businesses and more accommodating for those already in Westchester.
“We”™re going to work really hard to do the unglamorous things,” he said.
“… 45.1 percent of loan applications by small businesses to banks with less than $10 billion in assets were approved …” in your piece is misleading. Big bank’s branches accept applications from everyone — qualified or not. Then,they leave it up to a distant loan underwriting center to send out the “turn down letter.” By comparison, applicants meet with local loan officers at small community banks. These loan officers have dialogue with their loan committees and discourage prospective borrower before they make application a much more sane approach.
Jerry Chau