‘If you’re for job creation, you can’t be against the job creators.’
So says a television news commentator, stating the obvious. But small businesses are well-known job creators, and they’re they ones being denied bank loans that would help them grow and spark the economy and add jobs. This has been going on for too long.
Joe Nocera had a good op-ed piece on this in the New York Times the other day. He personalizes the larger story with two personal accounts.
His problem was — and is — the same one facing millions of small businesspeople. With lending standards extraordinarily tight in the wake of the financial crisis, banks simply aren’t making small business loans, not even to perfectly creditworthy people like David. Which means he can’t expand — and hire — the way he would like to. Yes, he said, he could continue to plow his cash flow into the business and grow it slowly. But to get the firm to the next plateau, he needs a bank loan.
“Banks say they have credit to offer,” he wrote. “And they make you go through all the motions. But then they offer nothing.” He tried three times to wrest a paltry $50,000 from two different banks, including JPMorgan Chase, which the firm uses for its own banking needs. He showed the loan officers Blue Heron’s receivables and its long-term contracts. It didn’t matter. He was turned down all three times. No collateral, said JPMorgan. Lack of a relationship, said the other bank.
As it happens, around the same time I was hearing from David, a small businessman on the West Coast was sending me very similar e-mails…“My wife moved here from China 13 years ago,” Bill wrote. She had already built and sold two spas; now she wanted to create something bigger and more luxurious. If all went according to plan, wrote Bill, she would employ between 25 and 35 people — “something Obama would appreciate,” he added with a touch of sarcasm.
Bill sent me the business plan for the new spa. It was impressive. He outlined Zhiqin’s track record. He explained that the cash flow from his day job — he’s an investment manager — could pay off the loan within 18 months. And then he sent me a chronology of his failed efforts, going back to April 2010, to land a loan that would allow Zhiqin to follow her entrepreneurial dream.
Wells Fargo. Cathay Bank. KeyBank. Columbia Bank. In all, 14 banks turned down Bill and his wife. Lack of collateral was invariably the reason. “Banks tell us to get lost when we come knocking on the door, even though we are putting up 60 percent on a $1.3 million project, which is halfway complete,” Bill wrote in early August.
A few weeks later, however, Bill sent me another, very different e-mail: Bill and Zhiqin were going to get their loan after all. A local institution, Sterling Savings Bank, based in Spokane, Wash., had said yes — much to their amazement and delight.
Why had Sterling been willing to overlook the lack of collateral, which had a been a deal-breaker for every other institution? Because, as one of its executives, Robert Weisel, explained to me, making sensible loans to small businesspeople was how Sterling competed for business — even when the loan applicants didn’t meet “the traditional standard,” as he put it.
“We are linked to our region and our community,” he said. ‘We try to distinguish ourselves by trying to figure out how to make transactions work, even if it means being willing to think outside the box.”
Which gets to the bottom line:
Three years ago, the federal government used tens of billions in taxpayer dollars to save the banking system. Now, at this dire economic moment, the country needs the banks to return the favor. Pushing the country’s banks to act more like Sterling Savings Bank, and less like JPMorgan Chase, is something that the president might want to put on his jobs agenda.