US SBA small business loans drop by over half

[Kay]

Here The Small Business Administration reported disappointing numbers (http://money.cnn.com/2009/01/05/smallbusiness/sba_loans_plunge.smb/index.htm?postversion=2009010612), acknowledging an enormous 57% drop in the number of loans they backed this quarter when compared to last years. Their loan guarantee program basically protects a portion of what banks are willing to loan as an incentive for the banks to give small businesses the funding they need.

The indications from this is that fewer small businesses are willing to take on the loans to grow or even begin while simultaneously the banks are making it harder for them than it was before.


Banks are unquestionably being more stringent in picking their borrowers. In the Federal Reserve's most recent loan officer survey, released in October, 75% of banks polled said they had tightened their lending standards for small business loans within the past three months, and 90% said they were charging more for loans and credit lines.

Not exactly the easiest environment to do business in. I understand the banks need to look out for themselves even with the SBA safety net in place but to increase their charges seems cold hearted to me. Their protestations they just don't want to get anyone in financial trouble don't ring true in my mind.

[Fergal]

If the loans are guaranteed, the banks should be reducing their fees. They can't lose so they don't need to factor in a risk element. You would think that banks would be very grateful, for government support, but it doesn't appear that way.

I think governments the world over need to take a stronger line with banks and be more demanding on them. Many banks have been saved from bankruptcy, governments should be telling them what to do, not making nice requests.

It is probably a good thing that businesses are being a little more cautious before they borrow. It is over-borrowing that has lead to a lot of the difficulties that we are experiencing today.

[scifi]

There is a proverb in India
A person who has tasted hot milk & get his tongue burned, drinks cold butter milk also with precaution
This means that a person who has undergone a trouble in the previous step puts his next step with utmost precaution possible so as to avoid in being troubled again, without thinking that next step is even worth of taking so much precaution or not!!!!!
I think same goes for current situation of banks too & the same is reflected in SBA statistics too!!!!

[Nazreen]

That's a nice Indian proverb Scifi and I also believe that it relates to the extra precautions that the banks are now taking before approving loans. They wouldn't want their tongues burned yet again wouldn't they?


"I declined a loan recently and the customer said, 'You have to give it to me because you have government funds.' But the reason for turning down the loan was not because we didn't have the money - it was because the customer didn't have collateral, didn't have enough personal investment in the venture, and was clearly unable to repay it," Polito said.

I'd have to take the side of the bank's on this one though. Write-offs of bad debts is the number one reason for banks failing in the US and other countries. They should have used this practice of being stricter in approving loans in the first place. If we see more banks failing then the economy will be even worse than it is now.

[Fergal]

Nice phrase Scifi, in Ireland we say "once bitten, twice shy".

[Kay]

If the loans are guaranteed, the banks should be reducing their fees. They can't lose so they don't need to factor in a risk element. You would think that banks would be very grateful, for government support, but it doesn't appear that way.

I think governments the world over need to take a stronger line with banks and be more demanding on them. Many banks have been saved from bankruptcy, governments should be telling them what to do, not making nice requests.


Ain't that the truth. The Treasury has already handed them money left right and center specifically for the purpose of lending out but the banks are hanging on to it and not doing so. They were told way back in October to give it out in no uncertain terms (http://www.huffingtonpost.com/2008/10/28/white-house-tells-banks-t_n_138576.html) by the Treasury.


There is a proverb in India
This means that a person who has undergone a trouble in the previous step puts his next step with utmost precaution possible so as to avoid in being troubled again, without thinking that next step is even worth of taking so much precaution or not!!!!!
I think same goes for current situation of banks too & the same is reflected in SBA statistics too!!!!

I like that one, scifi. :) I get what you're saying but the money's not theirs to stash away for their own protection. They should have done that long long ago with their own cash. I'm sure if we were to look at any major financial institution we'd find the usual bloated CEO bonuses and so on.


I'd have to take the side of the bank's on this one though. Write-offs of bad debts is the number one reason for banks failing in the US and other countries. They should have used this practice of being stricter in approving loans in the first place. If we see more banks failing then the economy will be even worse than it is now.

Nope, I can't agree there because they've already got the cash to do it from the government and there's minimal risk involved. Essentially it's the taxpayer who funded the Treasury money they're hoarding. It wasn't money they made through the day to day operating practices of their business. If anyone's guilty of mismanagement of money I'd say it's the banks.


Nice phrase Scifi, in Ireland we say "once bitten, twice shy". In Scotland too. :)

[Nazreen]

Nope, I can't agree there because they've already got the cash to do it from the government and there's minimal risk involved. Essentially it's the taxpayer who funded the Treasury money they're hoarding. It wasn't money they made through the day to day operating practices of their business. If anyone's guilty of mismanagement of money I'd say it's the banks.

Yup, you're right that the banks already have cash to give loans Kay. But the banks are not actually hoarding the money because if they do, they would get nothing (no interest) out of it. They're just making extra sure that the ones they issue the loans to are able to repay it. But then again, they might also be overdoing it.

[Kay]

Yup, you're right that the banks already have cash to give loans Kay. But the banks are not actually hoarding the money because if they do, they would get nothing (no interest) out of it. They're just making extra sure that the ones they issue the loans to are able to repay it. But then again, they might also be overdoing it.

Sorry Nazreen, I missed this before. And I have to disagree.

They are hoarding. Even the White House said they were. They specifically told them to hand it out months ago (http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/10/28/financial/f070247D57.DTL). The banks don't care about what pennies in interest right now they could earn on what some small business owner would pay them. They have bigger fish to fry. They care about having the money to keep their business running on a day to day basis and that's why they're reluctant to part with it.

I think if the White House has to specifically instruct you to lend it out, yes, it's fair to say they're overdoing it. The money wasn't given to them to cover their own butts, it was given to them to distribute via loans to allow the economy to remain fluid. The White House told them - "banks exist to lend money." They made it absolutely clear.


"As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy," Ryan told the annual meeting of the Securities Industry and Financial Markets Association. "It is in a strengthened institution's best financial interest to increase lending once it has received government funding."