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).

Our Friends at Forbes Say: "Get It While You Can"

Banks remain as reluctant as ever to finance small businesses, even though demand for capital is rising. The good news: alternative commercial lenders are filling the lending gap. Companies like US Capital Partners, LLC can help your small business secure intelligently structured and affordable financing when the big banks say no.

Credit Crunch, Part Two?

According to the June 2011 Pepperdine Private Capital Markets Project, business owners are enthusiastic about growing, but lack resources. Banks denied approximately 60% of loan applications over the last six months.

The latest data from the Federal Reserve in the Fall 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices show that banks are tightening their standards for loans to companies with less than $50 million in annual revenue, even as loan demand is ticking up.

The Good News

According to Forbes, plenty of small banks are still willing to lend. Asset-based lenders (those that focus on collateral risk ) are providing financing, too. But all that could change fast if the European debt crisis worsens (and spreads) and the U.S. economy continues to limp along. Forbes's advice to capital-hungry entrepreneurs: "Get it while it's lukewarm".

Earlier this year, the Commercial Finance Association reported in its Annual Asset-Based Lending and Factoring Survey Highlights that total credit line commitments for reporting asset-based lenders were $180.7 billion at the end of last year. Asset-based lending (ABL) continues to be a real fundamental financing solution.

Securing the Financing You Need

US Capital Partners is a private investment bank focused exclusively on small businesses. The ABL market, especially for small businesses, is now extremely fragmented. Optimal small-business financing will usually require several different ABL lenders. Finding the right lenders for your business and coordinating between them to engineer an optimal financing solution can be highly challenging.

US Capital Partners, LLC has in-depth specialist knowledge and experience in this fragmented ABL market. This allows US Capital Partners to engineer timely, affordable, and intelligently structured financing for your company.

Small Businesses and Bank Lending

In the old days you could practically pull up to a bank and get financing, like a fast food restaurant. Now you can't and the banks aren't serving you inside either.

According to the Wall Street Journal, loan approval rates at large banks dropped to 9.2% from 9.35% in August as large banks continue to struggle with growing uncertainty in global capital markets.

However, small banks approved 45.1% of loan applications by small firms in September, up from 43.8% in August. Also credit unions and microlenders increased their loans 3.5% in August.

As small businesses continue to struggle with flat sales and small growth rates, business owners are feeling that they can't meet underwriting requirements and as borrowers don't even apply based on pre-conceived notions. The new avenues to fill this need are private finance companies and should be marketed to the small business owner.

Bad news is big banks aren't lending and community bank loans are not optimal, good news is small finance companies and private lenders are. A private investment bank can help renew your small business and set you on a positive business direction for 2012.

Creative Funding for Companies in the Lower Middle Market and Small Cap Area

I recently sat down with Charles Yacoobian on Blog Talk Radio to talk about the ins and outs of lending for small and middle market companies. During our time on the B2B CFO Podcast: Asset Based Lending.. Is it right for your business?, we also discussed how at USCP, our philosophy is to provide businesses with a unique service that matches borrowers' needs to appropriately priced capital.

We are able to assess complex or special situations quickly and provide solutions outside the bankable box. Read a short excerpt from the interview below, and learn how our creative approach to funding has made us one of the most innovative small- to middle-market investment banks in the country.

You can also visit our blog to find out Why Commercial Banks May Not Be the Best Source of Capital for Your Business.

Charles: …Can you tell us a little about your background and about US Capital, and what you and your company do?

Jeff: Sure, Charles I, for years, ran a middle market aerospace company, and we were heavy users of asset based lending and capital of all kinds, for machinery, equipment, revolving credit lines, buildings, you name it. And well, I sold that business, in the early 90s, and with some of the proceeds, capitalized US Capital Partners with the intention to provide that kind of capital, that I was a big user of, to other businesses of that size.

C: Okay, and your company specializes in asset based lending for small and middle market, private and public companies, is that correct?

J: Well asset based lending yes. It’s small cap, you know, maybe 5 million dollar top line sales, up to about 100 million, 120 million is our sweet spot, and that’s primarily because as companies scale beyond 100 million or 150 million in sales, there’s quite a robust community of lenders that are interested in those kinds of transactions. On the other hand, in the lower middle market or “small cap” area, there are much fewer lenders are down in the space, so we like to be here because we provide kind of a middle market professional service down in the small cap area which is usually served by kind of a variety of services from relatively unsophisticated to what we like to think is best practice, and we try to lead best practice in the space. So, that’s why we’re here.

We will lend a variety of asset classes, or, and this really answers your question now, or, we may bring in another lender that specializes in an asset class and work with him and loan right next to him. So being a lead arranger, if our cost to capital availability on a particular piece of this financing isn’t optimal, well our structure is, we’ll bring in the optimal player. Let’s say a commercial bank, a very inexpensive commercial bank, is willing to do an AR line for your business, but they won’t touch your inventory or your cash-flow loan. Well, we will work with that bank, we’ll bring them in for the inexpensive AR portion of it, and then we’ll provide the little more expensive inventory and cash-flow loan so that you end up with a blended rate that’s very palatable.

C: Right.

J: Instead of force feeding you the entire debt structure from us, you see?

C: Right.

Listen to the full interview here: B2B CFO Podcast: Asset Based Lending.. Is it right for your business?

Listen to internet radio with cyacoobianXb2bcfo on Blog Talk Radio

About US Capital Partners, LLC

 Since 1998, US Capital Partners has been providing prompt, innovative, and

reliable financing solutions including lending, corporate financing, and debt re-

structuring to businesses across the United States and abroad. US Capital is a

private investment bank, direct lender, co-lender, and lead financial arranger that

specializes in asset-based debt for small- to middle-market private and public

companies. The company’s innovative approach allows them to provide the best

financing available, not only for companies in excellent financial condition, but

also for companies who may have been refused credit by traditional lenders.

If you would like to know more about how your business can secure the funding it

needs, visit http://www.uscapitalpartners.net/ or call (415) 882-7160.

Small Business Lending News: Small Business Owners Falling Through the Cracks of Popular SBA Loan Program

A recent Wall Street Journal Article titled "Those Seeking Loans Are Left in the Lurch by Erratic Funding," highlighted the a small business owner's story as he slipped through the cracks of the lending process for loans backed by the Small Business Administration.

Bill Cimino was approved for a $1.6 million loan last year to purchase the property on which his Wilmington, Mass., car dealership sits. The loan was backed by the Small Business Administration and—thanks to the government stimulus program—carried no borrower fees and provided his lender with a substantial guarantee against default.

The loan was scheduled to close at the end of December, to coincide with the end of his lease, but paperwork delays pushed it until February—just as the stimulus money for the program ran out.

This is an interesting article and dilemma. The SBA loan program is a great product but the vender (bank) has to be equally as good and that is often difficult to assess. The SBA should not take the full blame for erratic funding - especially since it's really the banks that are notorious (to insiders) for not telling the complete truth about their lending capabilities. The SBA is a guarantee and not a government disbursement, and there has been no recent reports of the drying up of loan guarantees from the SBA. More likely, the bank may have been constrained and pushed off the problem to the SBA.

The article also mentions issues with paperwork delays that may have just been the bank marking time since they did not actually want to lend or have the money to lend. But in the meantime, the business development officer may have enjoyed having the deal in the pipe, with little regard for how these actions would affect the business owner.

It is also important to note that there are some nuances to the SBA program regarding the collateral they require and collateral they do not. Many times you can limit the SBA collateral to specific assets which will allow you to borrow more from a different source to provide additional working capital for your business. Additionally, small businesses should be aware that they can unlock credit with alternative financing solutions.

Read more about Securing Small Business Loans for Working and Growth Capital.

There definitely needs to be more said about small business lending as it is a fragmented industry. So I'm glad to see the section of the Wall Street Journal addressing this.

See additional highlights from Emily Maltby's WSJ article are below:

• Lenders have historically issued loans backed by the Small Business Administration as a means to accommodate some of their more-risky Main Street customers because up to 75% of the loan would be reimbursed by the government in the case of default.
• In the government's most recent fiscal quarter, the number of 7(a) loans—the SBA's most popular form of funding—jumped to 16,558, twice as many as in the year-earlier quarter. The total dollar amount more than doubled, hitting $3.75 billion. But in the depths of the credit crunch, lenders weren't enticed by the 75% guarantee and SBA lending plummeted. That prompted Congress to include provisions in last February's Recovery Act that temporarily boosted the government guarantee to 90% and dropped fees associated with the loans.
• In total, $600 million has been allocated to the program, which has supported more than $23 billion in loans.

To find out more about how your business can secure the funding it needs, visit http://www.uscapitalpartners.net or call (415) 882-7160.