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In response to Freefall In Small Business Loans I received an email from "ABO" the CEO and owner of a bank.
ABO, who has been in the banking business 30 years, writes:
Mish,Enormous Paperwork With SBA
I was reading the article you wrote concerning the difficulty of securing small business loans and President Obama promising assistance via the Small Business Administration - SBA.
Most small banks run from the SBA. Reasons are many. Suggesting that the SBA is a solution is naive or dishonest. The problem starts with the government and they only make things worse!
To your list of reasons as to why banks do not lend I would add;
5) Bank regulators are pursuing a reign of terror, too late, after ignoring massive problems for years. They let this mess happen by ignoring safety and soundness and instead focused on important things like CRA and other compliance issues. Safety and soundness were ignored for political goals. Common sense was abandoned! What kind of regulator lets the majority of banks take brokered deposits and have a loan to deposit ratio of 120% or more with a concentration in one area such as commercial real estate. Any fool knows the danger that scenario poses! With a 6% capital ratio and virtually 100% of deposits invested in commercial real estate how likely would a bank be to survive? Even a 3% drop in real estate prices puts the bank out of business. Small undercapitalized banks are scared to death, as they should be. Yet, well capitalized banks with sound practices now fear the reign of terror.
One of the problems that ABO alluded to on SBA loans under the American Recovery and Reinvestment Act of 2009 (ARC) is the sheer volume of paperwork involved.
From CNN Money: "This is the stack of paperwork the Browns filled out for their ARC loan. They got $14,000, less than half of what they applied for."
Hunkering Down In The Fast Food Business
"Hunkering Down", a fast food restaurant owner writes:
I discovered your blog a while back, and I have become a faithful reader. You have been spot on in my opinion in most of your commentary. I have a small business, an independant fast food restaurant, we've been in our location since 1988.Mike "Mish" Shedlock
We have survived the recessions, new competitors, and many other ups and downs of the joys of capitalism, but I am not sure we are going to live through the governments meddling in the current financial disaster.
Last year we had 21 employees, now we have 11. Fortunately I was blessed with a better accountant than Bernanke. Mine told me when I was nattering on in 2007 (yes 07) about getting a 50,000 dollar loan for improvements that there was a horrible recession coming. He suggested that I pay down my debts and basically go into hibernation mode if I wanted to get through this. And thank goodness we did.
Adding salt in the wounds of those who did not see this coming, the Obama administration is scaring businesses to death with threats of huge taxes, health mandates, card check unionization, and cap and trade on one hand, and sheer ignorance of economics on the other.
Is a tax credit of FICA wages supposed to make me spend 20,000 a year on a new hire? Really? Money to pay the rest of his wage is going to come from....where exactly? Businesses are not going to hire to get a tax credit of FICA, they will hire when they need to. The program is useless for job stimulation, but costly for the deficit.
Any business person with a lick of sense is hunkering down, and the ones without sense are being forced to hunker, BECAUSE THERE IS NO BUSINESS! No, I don't want a loan. A loan (debt) is the last thing I or anyone else who is trying to surf the tsunami of this economy wants.
This is the "can't make him drink" economy whether you are a consumer, or a business person. The mess is compounded government officials riding horses with the saddles on backwards. The rest are either nuts or criminals, so there you are.
Multiply me by thousands of sensible others, and you see where we are headed.
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