What I learned on my flight to D.C.

Very seldom do I get to read a hard copy of The Wall Street Journal (and I never read it online because it is hidden behind a paywall). 

But on my 6:15AM flight to D.C. I did read the paper and thought I would share with you some of the interesting news.  Unless you pick up today’s paper, you’ll just have to take my word that this information is accurate since providing links to the stories won’t do you any good.

1.  Asset-based business loans are booming with $620 billion in such loans on the books today, up 25 percent since 2010.  Bank loans to small businesses stand at $584 billion, down from $713 billion in 2008.   But much of these new asset-based loans are coming from hedge funds and the recipient businesses are finding a dark side.  “It’s like financing that never goes away,” says Gary Rabin, chief executive of Advanced Cell Techonolgy.

2. Former SC Senator Jim DeMint is turning the once conservative “think tank” Heritage Foundation into a very conservative “political party” to the chagrin of Republican office holders.  Says the Heritage Action Chief Executive Mike Needham, “There’s a huge swath of the American people who feel totally unrepresented in Washington, and you have two political parties that are equally part of the problem.  We need to have a political party that steps up and says, ‘Look, it’s true, the fix is in in Washington and it might be difficult, but we’re going to be the party for you.”  Republican S.C. Congressman Mick Mulvaney is one of those critics of DeMint’s Heritage organization.  Regarding the recent battle over the farm bill Mulvaney is quoted as saying about Heritage, “We went into battle thinking they were on our side, and we find out they’re shooting at us.”

3. The U.S. economy improvement is being championed by Wall Street Journal columnists in big headlines.
Gerald Seib in his column, “Reasons to Hope Better Economic Times Lie Ahead”, gives “five reasons for long-term optimism”.
David Malpass, who served as assistant Treasury secretary to President Reagan and deputy assistant secretary of state to President George H.W. Bush, shouts in the heading of his column, “The Economy is Showing Signs of Life”.

4. After its successful launch of the small screen iPad mini now wants to explore going bigger with nearly 13 inch iPad screen.  I’ll just stick with my old 9.7 inch screen iPad.  See, I can be conservative and resist change.

Now onto the New York Times for the flight to Detroit.

Small business loans and BOA

Here we are in a new year and there are signs of hope for access to capital for small businesses…unless you are a customer with Bank of America. 

First the good news.

The Thomson Reuters/PayNet Small Business Lending Index showed that in November lending to small business hit its highest level in nearly four years.  According to PayNet founder, Bill Phelan, this is also good news for the economy.  "Businesses are betting on the future with increased investment spending."

But if you have a small business line of credit or are trying to get one with Bank of America, your economy might not look so good. 

According to a story today in the Los Angeles Times:

Bank of America Corp., under pressure to raise capital and cut risks, is severing lines of credit to some small-business owners who have used them to stay afloat.

The Charlotte, N.C., bank is demanding that these customers pay off their credit line balances all at once instead of making monthly payments. If they can't pay in full, they are being offered new repayment plans for as long as five years, but with far higher interest rates than their original credit lines had.

And it’s not just Bank of America that has called small business bank loans on clients who have not been late on payments.  Back in November the owners of Hot Dog Heaven in Woodstock, GA, were victims as well.  But fortunately for Becky and Barney Wentzel, the public furor over being treated so poorly by Ameris Bank, regardless of their perfect payment history, resulted in them and the bank reaching an agreement.

Let’s hope that the personal stories of Bank of America’s targeted small businesses also generate the needed negative publicity for that financial giant.

No gold rush for California small businesses

Los Angeles Times
December 14, 2011

California small businesses can't get loans

California's small businesses can't get the credit they need to expand and hire people.

Forty-four percent of almost 2,000 owners queried said they couldn't access resources needed to grow their operations, said a report released Wednesday by the Graziadio School of Business and Management at Pepperdine University.

With little savings, proprietors are having mixed success raising capital. Instead, they're concentrating on raising revenues from their current products or services, the Graziadio report said.

"Recent signs of stronger holiday consumer demand is a great sign for small business, but it is not time to celebrate just yet," said John Paglia, lead researcher at the Pepperdine University Private Capital Markets Project and an associate professor of finance. "Small businesses will need sustained consumer demand to recover from losses during the Great Recession."

The credit picture is even tighter in Los Angeles County, the Pepperdine report said. About 6 in 10 business owners surveyed see opportunities for growth next year but three-quarters of them expect credit to be tough to get.

http://latimesblogs.latimes.com/money_co/2011/12/california-small-businesses-cant-get-loans.html

Issues on Small Business Lending

Here are two good articles that talk about the lack of lending to small businesses.

The first issue is the problem with regulators, not regulations. We have heard numerous complaints of inconsistency of regulators in how they deal with financial institutions regarding small business lending. Some banking regulators are overzealous when it comes to the risk of a small business loan.

The second story addresses the issue of financial institutions treating small business loans as they do big business loans. The issue here is why do financial institutions make small business lending decisions on personal equity and not just on the performance of the business? That’s what they do for big business lending, which is solely based on the ability of the business to pay.

These are crucial issues that need to be resolved for small business to start getting access to capital they need to grow.

Small businesses failed once again

The news story below is a sad tale of how partisan politics, lack of administrative focus and regulatory slowness turned what should have been a boost for small business into a failed effort.  Nobody supported the Small Business Lending Fund more than I did.  I even participated in a press conference at the Capitol with U.S. Senators to push for passage of the Small Business Jobs Act that included the Fund. 

Lack of demand was not the reason for the Fund’s failure.  There was plenty of demand for small business loans when the idea was first presented by President Obama in January of 2010.  But Republicans in Congress with the support of the US Chamber, big banks and even the NFIB delayed passage of the bill for months while loading it up with too many limiting-bank qualifications.  Then Treasury didn't move fast enough with the regulations. 

But there is still demand out there for small business loans.  We just need a better and FASTER delivery system—and less partisan politics.

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Slate
October 11, 2011

Take Our Free Money, Please!

Why Obama’s $30 billion small-business loan program has flopped.

By Annie Lowrey

What happened to Obama's plan to help small businesses?

When the recovery started to flag in 2010, the Obama White House and Congressional Democrats attempted to pass a series of stimulus bills. A $150 billion, spending-heavy jobs package became $17.5 billion in tax cuts. Proposals for aid for the unemployed and the extension of Recovery Act programs faltered. But one bill that did pass was the Small Business Jobs Act, a law designed to funnel cheap money to small businesses.

The signature portion of the bill was the Small Business Lending Fund, a $30-billion pool of money for small banks meant to facilitate lending to small businesses. Little, local companies, the White House had long held, were the “engine” of the recovery and the creators of job growth. Help them, and you’d help the economy get back to growing.

Reading Treasury Department’s recent reports on the Small Business Lending Fund, you might think it had actually worked. “Billions of dollars in SBLF funds are now being put to use in communities all across the nation, spurring small business growth and job creation,” Deputy Secretary of the Treasury Neal Wolin said in a press release last month. The investment “is good for our economy and good for America’s small businesses.”

Treasury’s sunny spin aside, the program has largely flopped. It expired at the end of September having disbursed not $30 billion, or $15 billion, or even $5 billion. The SBLF is returning $26 billion to the government’s coffers. According to the Treasury Department, just 933 out of the country’s 7,700 or so community banks applied to the program. They requested just $12 billion in loans. And one-third of that sum got approved.

What happened? Well, first off, community banking organizations and small banks themselves argue that Treasury and the Federal Reserve made the program’s requirements too stringent and that they were too slow to get it off the ground. Treasury only started approving applications in early July, three months before the program’s expiration date.

The Independent Community Bankers of America lobbying group, for instance, sent repeated public letters to Treasury, asking it to clarify and loosen requirements and speed the application process. In September, with the program’s sunset in sight, it wrote: “[We] again implore Treasury and all the bank regulators to do everything in their power to ensure all SBLF applicants’ concerns are addressed … We urge Treasury to respond expeditiously to the community banks that still have questions and concerns … [W]e ask that Treasury take a hard second look.” In its defense, Treasury says that many of the community banks’ applications just did not pass muster: The banks could not prove they could make required dividend payments, or they already had missed a Treasury payment, or they were on a problem-bank list.

More troubling, the $4 billion in loans the government did make might not really help small businesses anyway. A Wall Street Journal analysis of Treasury data found that about half of the banks that took cash from the fund used some of it to pay back the Troubled Asset Relief Program. Rather than giving money to the restaurant around the corner or the startup in your neighbor’s garage, the banks gave it right back to Uncle Sam, bettering their balance sheets but doing little to spur business expansion or job growth. The Chamber of Commerce howled, branding the program little better than a bailout for small banks.

But there is another reason the program faltered—and might never have been able to succeed in the first place. Small businesses need credit to grow, to acquire equipment and hire workers to make sure more and more customers come in. But if small businesses don’t really believe that those customers are going to come in, well, they tend not to want to take on any debt. At some point, the problem isn’t a lack of credit. It’s an economy-wide lack of demand.

Have we hit that point? Almost certainly, and we’ve been there for years. According to the National Federation of Independent Business, the small business lobbying group, company owners routinely cite a lack of sales as the biggest problem for their business, more so than onerous regulatory requirements, high taxes, or trouble getting loans.

At a congressional hearing last week, Rep. Nydia Velazquez, D-N.Y., therefore argued that the whole program was misguided, “[wasting] today’s resources on yesterday’s problems.” In response, Treasury Secretary Timothy Geithner admitted, “We’re a little surprised by the take up” but maintained the program was “well targeted.”

In a way, they both right. Small businesses could use loans, and Treasury should be taking on risk and bending over backwards to make sure small banks are throwing free money at them. But that free money through the back door is no substitute for a flood of customers through your front door.

http://www.slate.com/articles/business/small_business/2011/10/why_obama_s_30_billion_small_business_loan_program_has_flopped_.html

Small business lending reports confusing and revealing

Consider this headline from a Reuters story on June 30, 2011:

U.S. Small Business Borrowing Rises By Record 26 Percent In May

Now consider this headline from the Wall Street Journal on the same day:

Smaller Businesses Seeking Loans Still Come Up Empty

Read the stories carefully and figure out how both stories could be correct? Hint: How do the reports define a small business?

For businesses I consider to be small (those with 100 or fewer employees), the second story is correct. Always look for the size of the loans or revenue to determine if a news story is really talking about small business.

And for the real small businesses, especially microenterprises with less than 5 employees, access to capital is almost non-existent unless a business owner has enough personal equity for the loan. The problem even exists in other countries like Australia:

Banks put small business 'under stress'

When did you ever hear a financial institution ask the CEO of a big corporation to securitize a business loan with his or her home? It doesn’t happen because the loan is based on the performance of the business.

That’s the way it should be for loans to small businesses also.

Small businesses still need loans

The South Carolina Small Business Chamber was a strong and vocal supporter of last year’s Small Business Jobs Act. I spoke at a press conference at the Capital along with several U.S. Senators to state our support and that of the American Sustainable Business Council for the legislation.

A key component of the effort was the establishment of a $30 billion lending fund to encourage community banks to make small business loans. Of course, just like Small Business Administration (SBA) loans, this program can only make issuing the loans more attractive. The SBA does this through federal guarantees and the lending fund does it through low interest rates.

The success of this new program is totally in the hands of the private lenders. Financial institutions cannot be forced to make the loans.

Today was the deadline for community banks to request to participate in the new lending fund. The Wall Street Journal reports that only 7% of the nation’s 7,700 community banks eligible for the loan program (because they have less than $10 billion in assets) have indicated that they want to participate. The Treasury Department has now extended the deadline to May 16th.

The reason given by some banks is that there is little loan demand from small businesses. That’s simply not true. The demand is there. I hear all the time that a small business owner, even with assets, can’t get a loan.

The truth is this. All financial institutions (with the encouragement of federal regulators) have raised the bar for qualified borrowers. Many of them are sitting on large vaults of money but are afraid to make small business loans that are now perceived as risky.

One solution to this dilemma is allowing the SBA to bypass the financial institutions and start making loans directly to small businesses. We’re now doing this with Stafford and other student loans from the federal government that use to go through private lenders. And I understand that the SBA actually does make business loans on its own in some cases.

The SBA direct small business loans idea has been discussed before but always quickly shot down. But if all the government incentives in the world won’t get the financial institutions to start lending to small businesses, then maybe it’s time to jump start the free market and our economy by putting Uncle Sam in the game.

Still the naysayers on lending crisis

In the run up to the vote in the U.S. Senate on the Small Business Jobs Act that included a $30 billion small business lending fund to help address the complete collapse of lending to small businesses, opponents began claiming that small businesses were no long looking for loans. The economy--according to the naysayers like the U.S. Chamber and its lapdog, the NFIB--had scared small businesses from wanting to take on any debt.


Even today after the Jobs Act has been signed into law and the loan fund regulations are being finalized; there are still deniers of a small business lending crisis even by some who should know better.

Russell Colombo, president and CEO of the Bank of Martin in California, recently told a reporter that there is plenty of capital available to make small business loans but there is no demand.

Well, enough of partisan-tainted opinion. Here is the reality.

Last week the New York Federal Reserve Bank released the results of a survey that clearly demonstrated that access to capital is an important issue for small business with 59% of respondents had applied for credit during the first half of 2010.

Of the small businesses trying to get a loan or line of credit only half were successful and 75% of all respondents said that they received only “some” or “none” of the credit they were looking for.

This week Small Business California in a press told of a survey of their members that generated “over 150 comments regarding the problems they are having with banks, especially the big banks.” Scott Hauge, president of the organization, stated that “small businesses are seeing their lines of credit pulled, their loans pulled, interest rates on credit cards spiraling upwards of 30% and extending the time of clearing deposit checks.”

Our banker, Mr. Colombo, needs to get out of his executive office more often and visit the real world of small business.

Help Us Pass Wall Street Reform

Dorfman (left) in action

This morning I joined Congressman Jim Himes (D-CT) and Margot Dorfman, CEO of the U.S. Women’s Chamber of Commerce, in a press teleconference call on why passing Wall Street Reform is important to small businesses. You can read my prepared statement below and hear the entire press conference by clicking here.

The U.S. Senate might vote as early as today on cloture which would enable a final Senate vote on Wall Street reform. The House has already passed this conference committee bill so we are very close to victory.

Below are the names of U.S. Senators we are asking you to call on this issue. Please help.

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Statement by Frank Knapp, Jr., president and CEO of The South Carolina Small Business Chamber of Commerce. July 12, 2010.

The last time Margot and I were together pushing for Wall Street reform, it was April 21st of this year, in a press conference at the U.S. Capitol with Senators Dick Durbin, Jack Reed and Michael Bennet. You can watch the video of this at the bottom of this post.

Back then, we were fighting against the misinformation coming from the big financial institutions and their mouthpiece, the U.S. Chamber of Commerce, and we’re still doing it today. Even though we’ve been successful moving the ball down the field very close to the goal line, there’s one more play needed to finish.

The U.S. Chamber of Commerce does not represent the interests of small businesses that have suffered because of the irresponsible actions of the nation’s biggest banks. The greed of these financial institutions collapsed our economy and shut down loans and credit lines to our small businesses. I don’t need to recite the statistics to you. We hear macro and micro stories every day about small businesses not getting access to the money they need. And every economist acknowledges that small businesses must hire the employees we need to lead us out of this recession, just as they have in the last three economic recoveries.

But ironically, the only business sector that is apparently hiring, according to Nelson Schwartz’s New York Times story yesterday, is Wall Street. Greed is still alive and well on Wall Street. And we all know that without passing the reform that is in front of the Senate this week, greed will bring our economy down again and tear apart our small businesses if we can ever get them back on their feet.

Yet, the U.S. Chamber still wants Congress and the public to be afraid. Wall Street reform will dry up loans to small business, Tom Donohue warns. No, Tom, you’re wrong. Your big bank donors are doing pretty well right now and they aren’t doing that by making small business loans. They’re making money on Wall Street.

The U.S. Chamber pretends to be a friend to Main Street, worrying that Sam the Butcher, Joe the Orthodontist and your local car dealer will be regulated out of business. Sorry, Tom, that’s not in the legislation. What the butcher, orthodontist and car dealer want are customers—the customers who lost their jobs because of your buddies on Wall Street.

Small business supports this reform legislation, because it will restore balance between Wall Street and Main Street through fair and common sense policies. Furthermore, it will create a stable, transparent financial environment in which community banks and credit unions can once again feel secure in making loans.

We at the South Carolina Small Business Chamber of Commerce have been strong supporters of a Consumer Financial Protection Bureau to better protect consumers, which includes small businesses. We’re not afraid of good regulation that keeps us and our customers safe from financial predators.

We’re in favor of making banks be banks and not gambling houses. We have been strong supporters of the “Volcker Rule” to put the brakes on proprietary trading by banks, the practice that largely is responsible for bringing us to the brink of another Great Depression.

The South Carolina Small Business Chamber of Commerce and small business organizations across this country want the Senate to pass Wall Street Reform.

Borrowing the line from our former first lady Nancy Reagan, Congress should “just say no”—to the U.S. Chamber. The financial health of our country and our small businesses depends on it.

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Please Help By Calling These Senators Today

Below are the names of targeted Senators we are asking you to call today. Tell their offices that passing Wall Street reform is very important to small businesses. Ask the Senators to vote for cloture on the House bill.

Thanks for your help.

Grassley (R-IA) (202) 224-3744


Lugar (R-IN) (202) 224-4814