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  • SF Fed Economic Letter: A Potential Decline in the Decline of Small Business Lending

    While the number and overall value of loans to small businesses continues to decline, the rate of decline may be leveling off, according to San Francisco Fed economists Liz Laderman and James Gillan . In an Economic Letter , Laderman and Gillan chart lending to small businesses from large and small banks. Here's the trend for large banks: Laderman and Gillan write: The small business loan trend at large banks is similar to the trend for all banks. Aggregate small business loans at large banks shrank between June 30, 2008, and June, 30, 2009, at a steeper rate from then until June 30, 2010, and more slowly over the four quarters to June 30, 2011 (Figure 1). At those large banks, the rate of contraction moderated for small CRE loans and especially for small C&I loans. The moderation in C&I contraction since mid-2010 is consistent with the results of the Federal Reserve’s quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices, which gathers data from approximately 60 large domestic banks plus some U.S. branches and agencies of foreign banks. The July 2010 survey was the first to show an easing of standards on C&I loans to smaller businesses since late 2006 (Federal Reserve Board 2010). But, whether positive growth in small C&I loans at large banks will soon occur and be sustained may depend on small business loan demand. The National Federation of Independent Business reports that about 25% of the small businesses it surveys cite poor sales as their main business problem. In contrast, only 3% cite financing as their main business problem, although 8% report that not all of their credit needs are satisfied (Dunkelberg and Wade 2011). It appears that a key variable for banks, small banks in particular, is whether small business loans are backed by commercial real estate or not. Those loans not backed by real estate are looking more promising. Read Recent Trends in Small Business Lending here .

  • White House Honors Small Business Owners, Calls on Congress to Pass Small Business Jobs Package

    Noting that small business owners are not "just the backbone of this economy," but also "the driving force behind this recovery," President Obama introduced the 2010 Small Business Owners of the year . The winners: National Small Business Owner of the Year: Waymon Armstrong, of Florida based Engineering & Computer Simulations Inc. First Runner-up: Rebecca Ann Ufkes (pictured second from right), president of UEC Electronics, LLC, of Hanahan, South Carolina. Second Runner-up: Warner Cruz (pictured third from left), president of J.C. Restoration, Inc., of Rolling Meadows, Illinois. In the ceremony honoring small business, the President outlined the goals of his administration in aiding small business owners, and called on Congress to pass a Small Business Jobs Package. Watch the ceremony here:

  • SBA Administrator Touts Loan Programs' Success in National Small Business Week Keynote

    Small Business Administration head Karen Mills kicked off National Small Business Week yesterday in Washington by celebrating some small business success stories from around the country. And she stressed that, while many business owners are still struggling to find open channels of credit, the SBA has had some success in unfreezing credit lines and getting money to business owners. Mills: 18 months ago, lending was completely frozen and credit lines were cut. Today, conventional small business lending is still very tight, but the SBA has helped fill the gap in credit. Specifically, the raised guarantee and lowered fees from the Recovery Act have helped engineer a turnaround in our top two lending programs – 7(a) and 504. We’re back at pre-recession levels. Altogether, we’ve taken about $680 million in taxpayer dollars… and turned it into more than $27 billion in lending support for about 63,000 Recovery loans. That’s nearly double our weekly loan volume compared to the weeks before it passed. Mills also shared this slide, to illustrate the turnaround in lending since 2008: Read Mills's speech here . For more on National Small Business Week, click here .

  • One Small Business's Expansion Efforts Blocked By the Credit Crunch

    Thomas Harrison wants to double his company's size in the next five years. If he were able to do so, he could at 20 new jobs. And Ypsilanti, Michigan--where Harrison's Michigan Ladder Company is based--needs those jobs. But Harrison's expansion plans are at the mercy of the banks. And banks are reluctant to open up new credit as they themselves try to recover from a series of loan defaults with the collapse of the housing market. The Wall Street Journal 's Mark Whitehouse describes Harrison's situation in what serves as a helpful case study for the struggles of small businesses across the country. And ultimately Whitehouse's article and accompanying multimedia features lay out the problem for job creation today--no credit, no expansion, no new jobs: For a recovery to take hold, hundreds of thousands of small businesses must find the confidence to expand and create jobs. But when they get to that point, the local banks they depend on—worried about borrowers' financial strength, scrutinized by regulators and slammed by souring real-estate loans—might not be willing or able to provide the credit they need. While big companies have been able to borrow in bond markets, smaller companies rely mainly on bank credit, which has been shrinking. In 2009, total lending by U.S. banks fell 7.4%, the steepest drop since 1942. In all, the credit pulled out of the economy by banks since the downfall of Lehman Brothers in September 2008 amounts to about $700 billion, more than double the amount so far distributed under President Barack Obama's $787 billion stimulus program. Read Loan Squeeze Thwarts Small-Business Revival here . And meet Harrison, CEO of 108-year-old American Ladder Company, in this Wall Street Journal video:

  • Robert Pozen on Fair Value Accounting

    In the November Harvard Business Review , Robert Pozen --former adviser to President George W. Bush and Massachusetts Governor Mitt Romney, and current chair of MFS Investment Management--weighs in on the debate over whether accounting rules bear some blame for the financial crisis. And he says that both sides in the argument over whether "fair value accounting" exacerbated the credit crunch a year ago may be wrong: We do not want banks to become insolvent because of short-term declines in the prices of mortgage-related securities. Nor do we want to hide bank losses from investors and delay the cleanup of toxic assets—as happened in Japan in the decade after 1990. To meet the legitimate needs of both bankers and investors, regulatory officials should adopt new multidimensional approaches to financial reporting. Before we can begin to implement sensible reforms, though, we must first clear up some misperceptions about accounting methods. Critics have often lambasted the requirement to write down impaired assets to their fair value, but in reality impairment is a more important concept for historical cost accounting than for fair value accounting. Many journalists have incorrectly assumed that most assets of banks are reported at fair market value, rather than at historical cost. Similarly, many politicians have assumed that most illiquid assets must be valued at market prices, despite several FASB rulings to the contrary. You can read his article here (subscription only). You can also watch Pozen discuss the issue, along with a brief introduction to some of the ideas he puts forward in a new book, Too Big To Save , in this video from Harvard Publishing: