As a small business owner with a lot of friends who also own small businesses, I get tired of hearing all the news stories about how small business lending is going to get a shot in the arm from President Obama’s programs or any other source in the foreseeable future. Yesterday, I listened to a speaker from one of the large banks talk about how many loans the bank was making, doing its share to get the country moving again. Forget the big banks; they were never the backbone of small business lending. But something is clearly amiss with the community banks, banks with less than $1 billion (and sometimes as little as $75 million) in assets. These banks are simply not making business loans unless they are absolutely gold-plated. Period. This isn’t because they don’t want to make loans; it’s because they’re being criticized by examiners, and basically, their hands have been slapped so hard that they aren’t willing to take any risks. I have a great credit score and great relationships with banks; I’m not one of those customers who have a “slight” credit issue. I have zero derogatory entries, meaning no delinquencies or legal filings. I’ve had the same home for 10 years; stable employment (I work for myself, and I’ve had the same employer for two decades); I have founded, run and sold several companies. In other words, I’ve been darn successful but didn’t go to college, so I consider myself mainstream America material. Also, at age 56, I saw the RTC meltdown of the 80’s and 20% prime, so I’ve got a few scars.
Heaven forbid I would need to borrow money on, for instance, real estate that is debt-free, or with a substantial amount of equity. If it’s worth $1 million, and you want to borrow $100,000 on it, or take any money out, you are out of luck. The regulators have made it clear to banks that they will be criticized for any loan where the borrower takes out any cash, regardless of the underlying fundamentals. This is nonsensical.
I understand that real estate is depressed, and that values are uncertain, and that tenants are moving and all the other fundamentals. And, I understand that speculative property or non-income-producing property is an issue.
The answer is simple: The regulators need to relax—not on every loan, but use some common sense! There’s no reason the system has to have a stick in the spokes and STOP. We’ve had underwriting standards for years; make them stricter, everyone agrees the money flowed too freely for the past few years.
What would be wrong with a loan made where the loan to value doesn’t exceed 50%, with a debt service ratio of at least 150%, from a solid borrower with stable quality global cash flows and good credit score/history? Why wouldn’t the regulators encourage that loan to put money back on the street?
I feel for all the small businesses in America that are crippled. They don’t understand why their debt free building isn’t worth anything for collateral on a loan or why their receivables, which have deteriorated only slightly, are now not worth anything as collateral.
Here’s the simple truth from one of the “little guys” in a small business who sees the misery here on the street and just can’t relate to our government’s plan to put more money in the system. There is plenty of money out there; someone just needs to stop sitting on it, after the regulators tell them it’s okay to lend some with solid underwriting policies.
This story has been truncated, see the whole story at: http://www.mrmissionpossible.com/blog/auto-salvage-consulting/obamas-30-billion-small-business-plan-more-money-isnt-needed/
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