Are banks resisting the push to lend to more small businesses? Many of these business owners say they are. The numbers don’t lie – nine out of every ten small business loan applications are declined by banks with $10 billion or more in assets. This definitely paints a different picture than the one they’re painting in their marketing efforts. And they’re all guilty of misleading advertising efforts.
It’s the heavy hitters who are faster to turn away small business owners. Those include Bank of America, JP Morgan Chase, Wells Fargo, and TD Bank are the ones that most often turn away small business owners – even those businesses that have been loyal to their banks for years. This is causing some business owners to throw their hands up, pull their assets and move their accounts to their community credit unions.
It has everything to do with diversification. These bank conglomerates are more diversified on a global level which means global events affect their decision making processes. Whether it’s the European banking crisis or signs of new wars, they feel the impact instantly and for much longer than other sectors. It’s the smaller banking entities, such as credit unions, that don’t necessarily have to consider those bigger issues. In fact, it’s rare they’re affected in any significant manner.
The fall of Lehman Brothers in 2008 is also being cited as a reason for these bigger banks to steer clear of smaller companies’ needs. That crisis sparked the beginning of the end for free flowing credit options. In fact, banks became perhaps too passive in their approval processes. Many are still erring on the side of caution. Their tougher approval processes requires much more documentation than ever before. Those small business owners that can’t comply with these tough new guidelines find themselves without a funding source. Couple this with a newer company that obviously cannot provide five years of financial statements or any significant credit history and it’s clear where the frustration is coming from.
Don’t forget all of the recent regulations. With tough new standards on what banks can and cannot charge consumers in terms of credit card fees and banking accounts, that’s just one more thing that’s not sitting right with American banks. Many bank employees found themselves in the unemployment lines, too as a result of these new compliance guidelines.
The real question is whether small businesses are worth the effort for bigger banks. These days, banks are looking at both long term considerations and bigger accounts. In this way, it appears diversification is actually being avoided as it would appear three huge clients is better than three hundred small businesses.
What’s most interesting is the way small businesses have come together in their efforts of finding other funding sources – and they’re finding them in the smaller institutes. Not only are they finding an ally in these small banks, but they’re also finding lower interest rates on everything from their business credit cards to their loans.
Perhaps these bigger banks have lost their appeal as a result of their arrogance and refusal to bend. If they’re alienating small businesses and if more consumers are turning to their own credit unions or prepaid debit cards, one can’t help but wonder what role these banks will play in the future.