December 28, 2009
By BARRY SHLACHTER
Small businesses have felt the pinch as banks have been extra careful in the wake of the financial industry’s near meltdown — billions in loans were made to poor credit risks, sometimes bundled as packaged investments with fancifully high ratings. Now banks are demanding heightened creditworthiness and more collateral.
A December survey by the National Federation of Independent Business found that borrowing conditions continue to be difficult, with 15 percent of respondents reporting that loans were harder to get in their last attempt.
"Twenty-four months of recession have sapped the financial strength of many small firms," the group said. A third maintained regular borrowing.
Whether or not big banks have been put on the defensive by public opinion and the White House, ad campaigns have been launched and statements issued saying they are ready to lend. On Nov. 9, Chase said it will increase small-business loans by $4 billion in 2010. On Dec. 14, the day the president met with top bankers, CIT Group publicly committed $500 million in new small-business loans and waived $1,000 "packaging fees" on some products.
"Lending had been looser than it should have been, and now the pendulum has swung the other way," said Scott MacDonald, director of the Southwestern Graduate School of Banking at Southern Methodist University.
"I say the spigots are open, but not as open as they were two years ago," MacDonald said. "Big banks just don’t have the capital levels, and some regional banks are lent-out. They’re maxed, maxed. They can’t make many more loans."
Before, banks were criticized for making loans with zero collateral. Now, they are criticized for demanding that borrowers put more skin in the game. "This means fewer and fewer people can qualify," he said. "That’s just realism.
"I am going to argue that banks are doing the absolute best they can to get money out there," he added. "Some are just coming up against brick walls."
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