The SBA and the White House Business Council sponsored a day-long urban economic forum at Loyola Marymount that featured Labor Secretary Hilda Solis, Magic Johnson, Mayor Villaraigosa, and a bunch of other business and political leaders. I moderated a panel on ways of growing a business and the one topic most everybody wanted to talk about was financing - more specifically, the unwillingness by banks to lend money to smaller businesses. We heard about numerous federal and local programs that can provide relief, but they are difficult to track down, and even then, applicants must go through all kinds of hassles and delays (and let's not forget they're trying to run their businesses at the same time). Anyway, they're holding these forums in cities around the country. I recently wrote a piece for the American Prospect that delves into the financing issues facing small business. Here's an excerpt (no link available):
The recession and its aftermath have been killers on small business borrowing. The number of loans plummeted from 13.5 million in 2007 to 4.2 million in 2010, according to a survey of federal regulators. The dollar value of those loans fell from $329.2 billion to $179.6 billion. Some of this is due to banks tightening up lending requirements and part of it is due to business owners who are wary of taking on additional debt. Banks are even putting pressure on current borrowers; Bank of America is asking some of its small business customers to settle credit line balances all at once. Otherwise, revised payment schedules will be put in place at far higher interest rates. As a nascent recovery slowly takes hold, the presumption is that both sides will loosen up a bit, which would mean a pickup in expansion plans and hiring. But the roadblocks to borrowing go well beyond the recent bad times. They reflect decades of operational neglect that make the lending process too slow, cumbersome, and expensive.
Since its start in 1953, the SBA has provided federal-assisted help for 20 million businesses. The administration of these loans, however, is typically handled by banks, which is where snags have been developing. The basic problem, even in decent economic times, is that smaller loans are not cost-effective for banks. They require a pricier operational structure - loan officers, collection departments, etc. - than simply lending large amounts to a small number of reliable customers. Compounding the reluctance to lend is the precarious climate for major banks, which has loan executives being pushed more often to say no than yes. That's one reason why applications under $20,000 are routinely turned down. The 25 largest U.S. banks underwrote just 20 percent of all SBA loans in 2010, which was down nearly a third from 2006 - despite those banks holding 32 percent more in deposits.