You wouldn’t think it would be too hard to sort out whether this is no small business lending because there is no capital … or because small businesses aren’t asking. There’s a lot here so keep reading if you want to gain a better understanding of what’s REALLY going on.
The Wall Street Journal recently carried an article, Big Bank’s Lending Programs Yielding Few Results So Far, which summarizes efforts by big banks like Goldman Sachs Group, Citigroup and Bank of America, under pressure from the Obama Administration, to launch programs to increase lending to entrepreneurs. Most of these programs are Community Development Financial Institutions (CDFI’s) – oh, great, another financial algorithm – which primarily lend to small businesses in low income areas – a worthy program but hardly a program targeted at the broad small business community.
Three days earlier in, A Credit Crunch That Lingers, the WSJ pointed out that only half of small businesses that tried to borrow last year got what they needed according to an NFIB survey (National Federal of Independent Businesses). This is a long article but provides some valuable, historical context to the small business lending business.
What’s going on? Part of the problem is that most of these programs are focused on the Small Business Administration (SBA) which represents less than 10% of lending to small businesses. Some banks admit their credit standards are higher, accusing regulators of pressuring them to raise standards, while the regulators say they’re just the fall guy.
In the meantime, I have reported previously that William Dunkelberg, Chief Economist of the NFIB, continues to report that small business DEMAND is down and that SMB financing is only a minor issue for most of their members; 92% of them report that their credit needs are currently met. His CNBC Guest Blog last week is a good summary of the situation and offers a rational view of the SMB lending market.
Banks are primarily collateral lenders to SMB’s and not venture capital providers, so it’s likely that many of these apocryphal stories of failed SMB borrowing attempts are from companies that wouldn’t qualify for bank lending in any era.