Well, you’ve survived the Great Recession and your outlook isn’t quite as glum as it once was. The economy doesn’t look great but it doesn’t look like it’s going to get worse right now. Maybe – just maybe – it’s time to invest a few shekels in your business. A couple of new salespeople, some updated equipment, some new software…maybe you can get a jump on the competition.
But where will you get the money to invest in your business? From a bank? Not so fast.
The latest data from the FDIC reveals that it’s largely the big guys who are getting bank loans. Total commercial loans are up 12 percent year over year to $1.5 trillion. But, not for small businesses.
“Well, why not?” you might ask.
Haven’t you done everything right? You reduced expenses during the recession; you learned how to control your inventory. You may have even figured out which products or customers were unprofitable and eliminated them. What about your local blue-suited loan officers that keep button-holing you at business networking events? Don’t they want to loan you money?
The questions might best be answered by looking at the other side of the coin.
The Fed’s zero interest rate policies have greatly benefited smart operators whose primary skill is financial engineering rather than job creation. But the real downside is that the policy also reduces banks’ profitability on loans. Low interest rates mean lower spreads for banks that make loans. Many bankers take the view that the profit opportunity is not sufficient to take the risk of making small business loans.
Why are big banks lending? Well, the new regulatory scheme outlined by the Dodd-Frank financial reform bill is designed to ensure that Too Big to Fail (TBTF) banks do not fail. In other words, the management of those banks need not fear the consequences of decisions gone bad. There is no threat of an FDIC takeover. No TBTF banks will be allowed to go bankrupt. After all, that’s what Too Big to Fail means.
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