Community banks provide alternative small business lending concepts

9/28/2011

The Small Business Jobs Act, signed into law one year ago, was expected to create an infusion of capital for small businesses. President Barack Obama designated $30 billion to the Small Business Lending Fund as well as $20 billion in state initiatives to enhance small-business lending, according to Entrepreneur Magazine.

However, Obama's intentions have not been met, and lenders have skimped in their ability to provide capital. The Small Business Administration reported that in June, loans to small businesses fell to $15 billion - continuing a downward trend since 2008 despite the government's efforts to reverse the trend.

Furthermore, the Arizona Business Journal reports that nationally, only 382 of the 932 institutional applications for SBLF funds were approved by regulators. In total, the fund awarded just $4.3 billion of the $30 billion approved by Congress as the program's September 27 deadline passed.

"It has taken a little longer to get all the 'T's' crossed and the 'I's" dotted on that program," Paul Merski, executive vice president and chief economist of the Independent Community Bankers of America, told Entrepreneur. "It was a little bit more involved because it isn't just a capital program, it's a program to foster small business lending."

The loan growth problem clearly isn't due to a lack of available credit - rather a lack of demand.

According to the March National Federation of Independent Business Small Business Optimism Index, 93 percent of small businesses say either all their credit needs are met or they are not interested in borrowing. Tougher lending restrictions have also discouraged smaller companies from borrowing.

"The difficulty for small businesses wasn't so much that credit was unavailable," Dana Kilborne, president and CEO of Orlando, Florida-based Florida Bank of Commerce, told the media outlet. "It was that it was dominated predominantly by the large banks, where there's been a significant rule change in terms of what their credit standards were, or they just weren't lending at all."

Merski added that the real estate market played a role in the lack of small business lending as well, since approximately 50 percent of smaller companies are backed by some form of real estate as collateral. As housing values decrease, the properties "have less equity to secure credit," he said.

Community banks offer a ray of hope, however. These institutions are often "scrappier" than larger banks, working with businesses to take on more loans that require complex methods to secure. They may even look the other way on a less-than-perfect loan application as long as the "key concepts are strong."

For example, the Radnor, Pennsylvania, Patch reports that Wayne-based Penn Liberty Financial recently received $20 million from the SBLF, and CFO Ted Aicher is eager to lend.

"We are ready, willing and able to lend but many small businesses continue to struggle," he told the news source. "As such many are not borrowing. In fact some of them are repaying their borrowings faster than they normally would."

Other community banks are assisting businesses using alternative strategies such as counseling, education and networking opportunities.

Kilborne's FBC hosts a variety of seminars featuring economists who discuss market trends, business forecasts and fraud prevention tactics, as well as tax experts who educate business clients on tax changes. The bank also offers QuickBooks training.

"We think our best clients are the ones that have good management, and we do whatever we can to assist them and give them access to things they wouldn't ordinarily have, like these quarterly seminars," Kilborne told the news source.