del.icio.us
Digg
Sphere
Stumble
Technorati
Twitter
Why Obama's Small-Business Plan Is Unlikely To Work
By Marc Tracy
As the Obama administration takes steps aimed at reversing the dramatic slide in Small Business Administration-backed loans, it is becoming even more clear that so long as such loans are ultimately dependent on private lenders, especially big banks, intiating them, the federal government's efforts are extremely likely to prove fruitless.
Most notably, earlier this week came news that four financial institutions--including Bank of America and Capital One Bank--that together accounted for 4% of all SBA loans in Fiscal Year 2008 have declared, "No más": they have either shut the door to new SBA loan applications completely or have effectively turned off that particular spigot at their bank. "Their sudden absence from the lending scene has left a hole that the banks continuing to participate in the program have not filled in," the article declares.
In fact, Bank of America's slide might be the most dramatic. In FY 2008, it made $136.1 million in SBA loans. But ever since its CEO referred to its SBA loan portfolio as a "damn disaster," well...in the first quarter of FY 2009, it originated only $3.3 million in SBA loans. Clearly that insane drop has something rather more to it than just dropping demand for credit. Clearly the bank that has received tens of billions in taxpayer money over the past half-year has decided it doesn't need to lend to small businesses anymore; and since, technically, no one is making it, why shouldn't it decide as much? Guess it's just too much of a damn disaster for a bank that might well be insolvent were it not for massive, unprecedented federal aid.
(Apologies if just how livid we are doesn't quite come across onto your computer screen.)
Meanwhile, even if you buy that lack of credit is the main problem for small businesses right now--which we don't really--the article is dubious that the administration's new efforts, including its pledge to purchase $15 billion of securitized small-business loans, will be enough to reverse this trend.
In addition to which, the Wall Street Journal reports that the Government Accountability Office has found that many banks do not secure from small businesses the documentation necessary to being eligible for an SBA-backed 7(a) loan, and that the SBA has failed to police this problem adequately.
When you put all this together, we're largely left back where we were all the way back in October: at an insistence that smaller financial instutions, and in particular community banks, must be made a crucial part of the process of restarting small-business lending. Fortunately, it does look like one person who would agree with us is Federal Reserve Chairman Ben Bernanke. But will he put his money where his mouth is (at least, where it is when he's speaking to the Independent Community Bankers of America)? We'll be watching him to see.
Comments (1)March 26, 2009 9:28 AM
Comments (1)
excellent article, so much emphasis is being put on Obama and the current situation it's almost like people have had sudden historic amnesia.
Posted by Bad Credit Small Loans | March 26, 2009 10:41 PM
Posted on March 26, 2009 22:41