When a bank in the year 2010, particularly a bank that has been branded as “too big to fail”, runs an ad pledging a commitment to lend $10 billion to small businesses, it doesn’t take long for the fact checkers to try to verify the unverifiable.
And so it is that, months after running a national ad, critics are trying to “find the money” at J.P. Morgan Chase (JPM).
Chase says in a recent ad that they have provided an additional $50 million in credit to 200 small businesses who had been previously declined.
The questions are obvious:
1. What’s the definition of a small business?
2. What counts as an origination?
But it may miss a more important problem. For banks to lend, there have to be businesses willing to take on loans.
For all the talk of lending standards that are loosening in some areas and remaining tight in others, it seems the more basic question is simply are small businesses ready to increase their debt levels?
According to the Wall St. Journal, some businesses are saying they’re fine thank you very much.
The Journal reported that many small business customers, like Noelle Tarabulski who owns a consulting firm in Colorado, are cutting back on borrowing. In part because of the weak economy.
Says Tarabulski, “I’m just never putting myself in a position where a bank can do that to me again,” citing interest rates being hiked up to as high as 38% on credit lines at the same time that her business was seeing a nearly 80% drop in revenue from 2007. “At this point, my approach to credit is different,” says Tarabulski, “I have no interest in being leveraged at the level I was. For me, I think there’s a healing period going on.”
Bank of America Corp., another bank that is under the microscope regarding its willingness to lend, is also citing weak demand. During the bank’s first quarter conference call last month, CEO Brian Moynihan said that loan demand remains weak because of overall economic conditions, as opposed to an unwillingness to lend.
Said Moynihan, “Customers are not feeling the need to draw on our lines because they don’t see the economic demand.”
To be sure, there are many small businesses that cannot get the credit they need. With an economy that still has many question marks, those stories are always the sharp end of the wedge. What is hopeful is that the increased scrutiny that comes from the taxpayer-funded bailout will cause banks to continue to take a second, or third, look at their lending policies.
Then maybe, businesses will start looking back.
