Small business owners already know loans from big banks are drying up, but a Treasury Department report released last week proved it. Eleven of the 22 banks that received Troubled Asset Relief Program (TARP) bailout money from the federal government slashed their total small business lending balance by some $2.3 billion in December, CNN Money reports.
This was the eighth month in a row that the 11 banks’ lending declined; seven of them have cut their small business lending every month since receiving the money. It’s possible other major banks’ lending has declined as well, but 10 of the 22 banks have paid back the TARP funds, so they no longer have to report their small business loan data to the Treasury Department.
If big banks aren’t much help to small business, President Obama is hoping that community banks can be. According to CNN Money the president fleshed out a proposal mentioned in his State of the Union address last month that would use $30 billion in TARP funds to create a government lending program giving community banks access to very cheap capital if they used it to boost small business lending.
The president initially pitched a version of the plan back in October, but community bankers didn’t like the idea of getting involved in TARP because the program has stringent regulatory restrictions and has attracted a lot of ire from the general public.
The president’s current proposal would divert TARP funds into a completely new lending program, separate from TARP, to make it more appealing to the bankers. Banks can borrow at a dividend rate of as little as 1 percent. The rate decreases as the amount of money lent to small businesses increases, incentivizing the banks.
However, getting Congress to enact the proposal will be an uphill climb. One Republican senator, Judd Gregg (R-NH) already expressed opposition, telling CNN Money, “The law is very clear. The monies recouped from the TARP shall be paid into the general fund of the Treasury for the reduction of the public debt. It’s not for a piggy bank because you’re concerned about lending to small businesses.”
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SMBs will struggle to get loans as long as the current risk evaluation system exists. SMB owners accept risk as an opportunity and banks are hugely risk averse right now, creating the current environment. Keep bootstrapping and look for alternative forms of financing because banks are going to continue their stingy ways.
I continue to be surprised at the fixation of hope that banks of any size or politicians of any persuasion will be creating the conditions that will lead to increased lending to small businesses any time soon. Banks are risk averse by nature, and having just come through their most risk-tolerant era in history, and having been slammed by the same politicians that encouraged and promoted sub-prime lending, they aren’t about to stick their necks out any time soon.
Further, the politicians aren’t giving the $30 billion to the banks to actually loan out, otherwise they would require it. They are suggesting this diversion simply as another empty photo op pretending to help small businesses. They want to claim they’ve done something to help because it’s been so obvious over the last 18 months that their allegiance is with big business and big money, to the ongoing detriment of small business.
Olympia Snowe, a self-proclaimed small business advocate is working with Karen Mills, Director of the SBA (and a good friend from her state) to kill the ARC loan program, the only loan program in the history of the SBA that was actually targeted at helping true small businesses. And banks are continuing to hike interest rates to historic highs while they enjoy borrowing rates at historic lows. That is the true state of political and bank commitment to small business lending.
All the rest of this is continued window dressing, pomposity, posturing, and brazen disregard for the plight of small business lending.
The government doesn’t need to illegally divert $30 billion from TARP (Senator Gregg was quoting from the TARP repayment law, not expressing an opinion). Instead they could have used a few tens of billions of the $1.5 trillion in bailouts and loans already given to big businesses and big banks, to focus on the #1 job growth sector – businesses with under 10 employees. Instead they dumped it all on their relection buddies and now we have to suffer through a couple years of empty photo ops like this one so they can pretend they’re paying attention to small business, too.
The constant barrage of claims to help small business over the last 18 months are all just like this one – a show put on to pretend to do something. Where’s the beef?
The government gave $800 billion to hundreds of banks and they did nothing to help small business. Now they want to give $30 billion to hundreds of more banks that have already said they don’t want to participate. Any bets on how this photo op will work out?