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Are National Banks Keeping their Promise to Increase Small Business Lending?

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Are National Banks Keeping their Promise to Increase Small Business Lending?

By JamieD
Published: August 25, 2010

While efforts to revitalize the economy are in full affect, credit for small and medium-sized businesses has remained tight. According to the National Small Business Association, their 2010 Mid-Year Economic report showed that 41% of small businesses are unable to get the financing they need, showing that financial confidence in the small business community remains stagnant.

Fortunately, small business owners may have a reason to celebrate; or at least a reason for hope. Over the last year, four of the natio-s largest banks pledged to increase lending to small businesses and thus far, each appears to be keeping their word.

Bank of America

Leading their effort to boost the small business economy, Bank of America promised to increase lending by $5 billion this year. With the halfway point behind them, the bank has already met that goal. In the first six months Bank of America made $45.4 billion in loans- already $9 billion more than was loaned during the same time period last year. In addition to their push to increase small business credit, the bank has improved policies on their small business credit accounts and pledged to increase spending over the next five years. While credit account holders will benefit from no rate increases, small- and medium-sized businesses stand to benefit from $10 billion in purchases of products and services from vendors in their sector over the next five years.

Wells Fargo

Well-known as the owner of Wachovia, Wells Fargo has done their part to enhance small businesses financing opportunities. After conducting small business surveys, the bank found that an increased number of owners no longer expected increases of revenue, cash flow, and spending from their businesses over the next year. During the last quarter, Wells Fargo combated those fears by increasing small-business lending by approximately 30 percent. They also committed to getting more money into the small business community by taking a second look at applicants that were previously declined. By increasing their lending and giving potential loan recipients another chance, Wells Fargo hopes to turn around the perception of small business lending and get other lenders to follow suit.

Citigroup

Citigroup made its pledge to help boost the small business community by targeting economically depressed areas. Citigroup has found its niche in finding small businesses that have gone from being a standard applicant to a high risk because of the economy. The bank has promised funds to below-market-rate loans to qualified business owners in this category. Over the last six months, Citigroup has doubled its small-business lending.

JP Morgan Chase

Similar to its competitors, JP Morgan Chase has set a lofty goal of making $10 billion in new loans to companies with under $20 million in revenue. If met, this goal would increase their 2009 goal by $6 billion. In the first half of 2010, JP Morgan Chase has increased its lending (which includes credit cards) by 37%. In addition to hiring 235 new small-business bankers, the company has also awarded $110 million in loans to small business applicants that were originally turned down. The'second-look loan' that have become popular with JP Morgan and Wells Fargo indicate that banks are reevaluating their business lending processes.


Regional Banks

Although the actions of the national banks are encouraging, many business owners remain concerned about smaller, regional banks. Traditionally these banks were advocates for small businesses and accounted for a large portion of overall small-business lending due to their palatable qualification requirements. Unfortunately, these banks are still facing big financial difficulties. The hope is that lending increases from the'power-hous' banks will give smaller banks and the small business community the boost they need to find financial success for all parties involved.

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Banks are meant to provide least cost debt and so when there is real risk, its hard for them to deliver. It just is not their business model or role in the market. The challenge is that in today's market there are good businesses with a growth proposition but they shelve their plans because they are stuck in a capital gap. They can't get enough from their bank and are either not interested in equity (not want to sell in 3-5 yrs or give up ownership/control). The solution for established businesses that can show a robust sales pipeline and have a strong management team may be royalty financing. ---This post was edited to remove a commercial link and advertisement. Read our discussion policies for more Community best practices.
Heinzman - many startups use a mix of personal savings (bootstrapping) and investor funds. You can read these two articles for more information.
Where can a stert-up company get financing? Banks generally do not loan to start-ups.

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