Are banks lending ... or not? - Ahwatukee Foothills News: Opinion

Are banks lending ... or not?

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Bob Beane is an economics graduate of the College of Wooster and an MBA accounting graduate of Miami University in Oxford, Ohio. He is also a bicycling advocate and has been a resident of Ahwatukee since 1992.

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Posted: Wednesday, October 5, 2011 4:00 pm | Updated: 10:38 am, Tue Aug 14, 2012.

One of the keys to the recovery and success of our small business community is the availability of financing. Nearly every day I hear CEOs of banks and "authorities" in the media saying that banks are lending, while there are plenty of small business owners who say that they are not.

What is the truth, and how long must we go on with unresolved conflicting views? When will our media sleuths get to the bottom of this issue and tell us the truth? Small business, their owners, and those who serve them would like to know the answer and see the environment improving in order to commit to expansion, hiring and other investments.

Based upon my business-related conversations with lending officers in recent months, my reply would be, "Yes, banks are lending, but significantly less than three years ago."

The main (obvious) point consistently not made in the media is that the requirements to receive a loan are tighter. While a bank says that it will loan money "to qualified businesses and individuals," here is what probably has changed and what the media should be revealing to the public:

• Some banks will no longer lend to a new business (in business two years or less, for example), regardless of the quality and experience of the management team.

• Credit scores of business owners must be above "X," where "X" is either higher than it used to be or harder to attain given the economy of recent years.

• Businesses must show two or three years of increasing sales and/or profits (many small businesses can't meet that requirement, through no fault of their management acumen or activity).

• Some lenders have pulled back from lending to businesses in certain industries. It certainly is more difficult for an average restaurant to get a loan than it was four years ago.

• Extensive and more stringent personal collateral requirements may be required of owners, who may be more reluctant to commit personal assets given today's political and economic uncertainty.

You get the idea.

Before we tar-and-feather our local lending officer, we should remember that these requirements are generally policy decisions made at the highest levels of a financial institution.

Often, those policy decisions are made in an environment of increasing regulator scrutiny and more stringent capital requirements (which would have been very useful four or five years ago). And, your lending officer is most likely also being affected financially by the current difficulty in making a "normal" volume of loans.

It takes courage and energy on the part of a lender in today's environment to truly understand your business and to stick his or her neck out for a small business with quality fundamentals and a good management team.

Larger businesses have access to private investment banking firms when conventional lending is more difficult to come by ... smaller businesses, not so much.

The good news: There are some banks willing to make the effort to understand your business and bend the rule-of-thumb if you can make a well thought out and solid case for financing.

These banks, and their more industrious lending officers, will play a part in bringing us out of the current doldrums.

Most of them will likely never get the recognition they will deserve for taking the risk and going the extra mile to allow those businesses to be successful.

• Bob Beane is an economics graduate of the College of Wooster and an MBA accounting graduate of Miami University in Oxford, Ohio. He is also a bicycling advocate and has been a resident of Ahwatukee since 1992.

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