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.

Occupy Wall Street: Its Impact on Banks and Credit Unions

Occupy Wall Street (OWS)Ever since Occupy Wall Street began life last September in Manhattan’s Zuccotti Park, it has sought to spark a national debate on our economic system and the way its spoils are divided. As an investment banker and small business lender, I am often asked about the movement and its impact on banks and credit unions. Here are my thoughts on some of the questions I get asked most often:

  

Has anything changed since Occupy Wall Street first began?

Smaller banks and commercial finance groups are starting to speak up about bad service and unfair competition from the bailed-out (“too-big-to-fail”) banks and about how inefficient they are. Also, I believe the reversal on debit card fees is a direct result of Occupy Wall Street, which helped fuel the consumer backlash. The protests and media coverage certainly amplified concerns and heightened the conversation. It’s a claimable victory for Occupy Wall Street.

Have smaller community banks and credit unions benefited through customers moving their money out of the large Wall Street banks?

 
Smaller banks may have benefited in increased deposit relationships at the beginning.

Have bank customers become more polarized?

 
Absolutely. Occupy Wall Street needs a bit more direction and few bullet point issues to rally around. In the early stages, the movement was driven by a general feeling of malaise, but as time goes by there will likely be a rallying around a few key issues. This is when the movement will really gain momentum. Whoever strikes the note will emerge as a thought leader in the space.

Have lawmakers listened, and if so, what are they saying in an election year?

 
Nothing. They are still clueless and afraid.

In this instance, is social media’s bark bigger than its bite?

 
I don’t think so. Wait for the weather to get better in spring and summer of 2012. The movement will explode, and social media will prove to be a potent rallying force in its support.

Keep in touch with the team at US Capital Partners: Tweet us at @smallbizlending and share your thoughts on Occupy Wall Street (OWS).

Leveling the Playing Field

Recently, The New York Times published an article entitled “The Fattest or the Fittest?” The topic, which seems to be gaining increasing limelight in Washington, is the elimination of the significant benefits reaped by gargantuan banking institutions—like Bank of America and Wells Fargo—that are too powerful and interconnected to fail.

Big banks that are not allowed to fail receive implicit subsidies, especially in the form of lower borrowing costs, as a result of investor belief that taxpayers will rescue them. Senator Sherrod Brown, the Ohio Democrat who leads the Senate Banking subcommittee on financial institutions and consumer protection, has been strongly advocating that the government needs to stop placing these “megabanks” at an unfair advantage over their smaller competitors.

At US Capital Partners, we welcome a leveling of the playing field. What the big banks should do is provide more and better leverage for the small asset-based lending shops instead of completing with them for $1–3 million factoring lines, which these large banks don’t do well anyway. Nothing is more annoying than a gigantic bank recently bailed out by taxpayers competing in our small business lending space for a $500 thousand deal.

All too often, the big banks move into areas of lending in which they are simply not adept. They are able to put undue competitive pressure on smaller lenders, sometimes taking them out of business, largely through the unfair advantage they gain from an uneven playing field. In the words of Richard W. Fisher, the president of the Federal Reserve Bank of Dallas, the current regulatory ethic “coddles survival of the fattest rather than promoting survival of the fittest.”

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.

Letting Go of Wall Street - My Response

Rasanath Das, in blue sweater, in a group meditation at Occupy Wall Street in Zuccotti Park. Photo by Philip Montgomery for The Wall Street Journal.The Wall Street Journal published an article last week entitled “Letting Go of Wall Street.” It features Rasanath Das, a 32-year-old MBA who previously earned a $170,000 salary working long days negotiating deals at Bank of America. Choosing to eschew materialism and devote himself entirely to spirituality, Rasanath Das resigned as an investment banker to lead the life of a full-fledged Hindu monk.

Over the past year, however, Mr. Das has been invited by bankers to speak on the subject of mindfulness and the market. Because of his Cornell University MBA and years in the industry, bankers can relate to Mr. Das, whose talks recount his career trajectory in finance and his eventual choice to leave it.

I decided to post a comment.

My Response to the Article

The “spiritual” aspect of the service Mr. Rasanath Das performs, as it relates to business, may be difficult for most of us to get our heads around. Not that there isn’t value there. I am merely acknowledging the challenge. Perhaps an easier concept to grasp is the important difference between providing “service” to all parties to a transaction in business for remuneration and merely engaging in “self-service,” where the transaction benefits certain parties disproportionately, especially the provider. I believe it is this ethos of self-service that is the root cause of the current problems we have in “big” business, and which is sparking this particular “revolt” that I believe is merely in its nascent stages.

The solution may be to go to a more value-added and transparent service model for larger businesses, much like the model successful small businesses provide.