Is Your Bank About to Call Your Loan?

Corrigendum: This US Capital Partners blogpost is based on, among other sources, The Wall Street Journal article “Debate: Do Big Banks Lend Enough to Small Businesses?” (Dec. 13, 2011), featuring guest speakers Ami Kassar and Marc Bernstein.How to measure the risk of your bank calling your small-business loan, and what to do if you need refinancing.

According to a recent article in the Los Angeles Times, Bank of America is now demanding that some of its small-business customers pay off their credit line balances in full instead of making monthly payments. If customers are unable to pay off these balances on demand, they are being offered new repayment plans over as long as 5 years, but with far higher interest rates than before.

How to Know if Your Loan is About to be Called?

Unfortunately, your bank will generally not tell you your loan will be “called,” or not renewed, until right before it takes action. How do you know if your business is at risk? For a few easy steps to assess whether you are a likely candidate for loan termination at your bank, read our guide on financing.

A Few Reasons Why Banks Drop Small-Business Loans

Banks will pull loans for a number of reasons, but the most common are:

 • poor financial performance by your business

• your bank’s own credit problems

• to impress the bank regulators

According to the Los Angeles Times article, "Bank of America severing some small-business credit lines," the Bank of America began dropping small-business loans because of pressure to raise capital and cut risks, in the wake of another round of Federal Reserve bank stress tests. The Wall Street Journal reported also that Bank of America’s CEO, Brian Moynihan, has told federal regulators that if the bank’s financial problems deepen, it could start retreating from certain parts of the country.

What to Do If Your Business is at Risk

Marin McElhanyIf your small-business loan is at risk of being called, you should contact our team at US Capital Partners, LLC immediately. There are usually plenty of financing options available to a small business in your position. US Capital Partners will help you secure the financing your business needs, so that you don’t suddenly find yourself at risk if the bank terminates your loan. 

If you would like to know more about how your business can secure the funding it needs, contact our Vice President of Sales and Marketing, Marin McElhany at marin@uscapitalpartners.net or call (415) 889-1010.

It’s Time to Break Up the Bigger Government-Supported Banks

According to The Wall Street Journal, “Smaller U.S. banks and savings institutions are cutting jobs in a sign of a deepening financial-industry retrenchment that is shaking firms from Main Street to Wall Street.” More than 2,500 banks cut their work forces in the third quarter of 2011, reducing their staff by a combined 20,332 jobs, or 2.5%.

Small community banks are, of course, the lifeblood of small businesses. This is therefore a worrying development, with the potential to sink the U.S. economy into a second recession, if not properly addressed. It’s high time we broke up some of the bigger government-supported banks and better regulated their product offerings, which have become too diversified and create systemic risk. More smaller banks obviates the “too big to fail” conundrum. This then breathes life into the smaller regional banks, which are closer to their communities and borrowers and are better able to evaluate financing realistically.

Large government-supported regional branches of behemoth banks run by 18-year-old, high-school graduate “store managers” (or in the words of The Wall Street Journal, “straight-out-of-college branch-manager trainees”) are not going to make intelligent credit decisions and loans to smaller businesses in need. They are going to err on the side of conservative formulaic lending, which is choking off credit. As a model of success, look at asset-based lenders—a diversified, fragmented group of small commercial lenders in excellent financial condition that continues to lend to smaller businesses despite the ongoing constriction in small business lending by the bigger banks.

Are Banks Starting to Make More Loans?

According to a recent article in The New York Times, several of the nation’s biggest banks have reported significant increases in lending. Amidst the economic turmoil, the article states, “the banks have quietly turned on the lending spigot.”

However, a closer look at the state of bank lending reveals that it is nowhere near where it was in 2008, when the financial crisis unfolded. If you adjust the figures for one-time accounting changes, you find only modest increases in bank loans.

Source: Federal Reserve and The New York Times

More importantly, commercial loans remain heavily weighted toward larger companies and the strongest corporate borrowers. Small businesses continue to find it difficult to get the financing they need.

According to the “2011 Mid-Year Economic Report” published by the National Small Business Association, 36% of small businesses reported they were unable to get adequate financing. In other words, more than one-third—which could translate into more than 10 million—of the nation’s small businesses remain “underbanked.”