Wednesday, September 21
Last week I spent some time in Washington, D.C. with about fifteen of our small business owners to participate in a number of White House Small Business briefings and talk with our local federal elected officials and their staffs on the issues we are facing. The focus of the administration last week was on the American Jobs Act and a number of proposals related to increasing access to jobs for the unemployed and access to capital for small business.
Yesterday, I was in attendance in Solon, Ohio, at the headquarters of Wrap Tite for a visit from Vice President Joe Biden and Administrator Karen Mills who leads the Small Business Administration (SBA). Sunil (Sunny) Daga’s shipping materials manufacturing and distributing company moved into their current space about a year ago with the help of an SBA loan from Charter One and the Growth Capital Corporation.
Biden used his time to talk a lot about the American Jobs Act and focus on the middle class as the engine of the economy. In addition to Wrap Tite staff, friends and family, there were other SBA loan recipients in the room and about twenty bankers that work closely with the SBA in Northeast Ohio. The visit was intended to highlight new funding initiatives recently announced by the President for small business. During the forty minutes Biden spoke, there were only a couple of lines about the $20 billion these banks have committed to making available to small business.
That shouldn’t get overlooked, however. In summary, these banks have agreed to increase their own lending to small businesses – outside of the SBA guaranteed loans they already do. The goal is to have these banks increase the lending they do to small businesses to make more credit available.
About a year ago, the administration proposed and put in place a $30 billion fund for community banks to increase lending by providing them capital at bargain basement rates. Unfortunately, the program required a lot of oversight on the credit quality of those banks. In general, banks that had capital to lend and were in a strong position got more money to lend at cheaper rates. Those banks that were in a more precarious position could not get access to those funds. Overall, the program doesn’t seem to have done a lot to increase lending that wouldn’t otherwise have happened. Here is a link to some of the that program’s details.
Yesterday’s announcement was really focused on the big banks. Thirteen banks, including six that are active locally (Huntington, Key Bank, JP Morgan Chase, Charter One, US Bank, and PNC Bank) have jointly committed to increasing lending by $20 billion (over the next three years) to small business. It certainly can’t be a bad thing. And, some of the banks look like they may exceed the initial commitments that they made. Key Bank put a press release out yesterday committing to $5 billion in additional lending. This is $3 billion more than the commitment they made as part of the $20 billion announced yesterday.
I haven’t done the numbers to see how big a deal this $20 billion is or how these individual bank commitments compare to their “normal” lending activity –i.e. does it represent increases of 10% or 50%+ of current planned lending. A good data point might be Huntington Bank , which was the nation’s number three lender for SBA loans last year and number one in the six state federal region in the Midwest. They lent $1.1 billion in 2010 to small businesses.
And, we can only hope it will stimulate more aggressive lending that goes beyond the “no-brainers only” approach many banks have been forced to take given the action of regulators and the fear over the economy. Consider, however, how big an activity gap has been created by the great recession. According to Biden’s remarks yesterday, in 2008, lending to small businesses from the banks was somewhere in the $700 billion range. Last year it was just over $100 billion. Nonetheless, $20 billion from 13 banks is a strong start, but we’ve got a long way to go to more liquid capital for small businesses. It will be interesting to see the progress made as these banks start to report on these important commitments.
Posted by:Steve Millard