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  • Marketplace Whiteboard: Why the EU Wants Dollars

    Last week the Federal Reserve and the European Central Bank announced a plan in which they, along with other key central banks, will coordinate efforts to fight the global credit crunch . In short, the Fed will make it easier for the ECB to get dollars. Why do they want dollars, when they have their own currency? Paddy Hirsch takes to the Marketplace Whiteboard to explain: Why does the EU want U.S. dollars? from Marketplace on Vimeo .

  • Karen Mills on the Need for Public/Private Partnerships to Get Capital to 'Main Street Businesses'

    Speaking yesterday at the Brookings Institution , Small Business Administrator Karen Mills once again argued that the big challenge for small businesses is getting access to capital. Mills pointed to positive signs for small business growth, but without banks lending to smaller institutions in many communities, there is a gap between supply and demand. One answer may be fostering more private/public partnerships: Watch more excerpts from Mills's appearance yesterday here .

  • 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 .

  • Another Call for Startups in a Downturn

    Rohit Arora may not believe in the strength of the US economy right now, but he still believes that current conditions should encourage new business ventures. Arora started Biz2Credit at the height of the financial crisis three years ago. So he has put his money where his mouth is. At Small Business Trends , Arora gives four reasons that now is a good time for startups: 1) Job Growth Is Almost Nonexistent 2) Low-Cost Capital Is Available 3) Technology Makes It Easier to Go Into Business Than Ever Before 4) America Has a Heritage of Entrepreneurship Okay, so the fourth reason is a little less scientific (indeed, Arora might make many economists roll their eyes when he credits small business for leading the US out of past recession), but the others represent classic downturn opportunities. Do you see others? And what are the primary impediments for new business ventures at this stage beyond the uncertainty of the larger economic picture? Read Arora's full post here .

  • A Blueprint for Reasoned, Rational Response to Small Business Economic Challenges

    The cover of the legendary Hitchhiker's Guide to the Galaxy had two simple words: Don't Panic . Mike Periu of EcoFin Media urges small business owners to heed that advice. As bad as it may seem, panic is not a productive response. Instead, Perlu writes at American Express's Open Forum , "take a deep breath," and then follow these steps: First, check your lines of credit Second, slash your sales forecasts Third, increase your DSO, A/R, and bad debt assumptions Fourth, hold an employee meeting Fifth, stay flexible Read Should You Be Panicking Right Now? here .

  • Small Business Borrowing Needs

    There are some signs that small business owners are feeling better about their access to credit these days. After the financial crisis, the credit crunch was paralyzing for many entrepreneurs and would-be entrepreneurs, so any opening of credit would be a welcome boost. Scott Shane , Professor of Entrepreneurial Studies at Case Western Reserve University, agrees, but isn't so sure we are seeing a enough of an increase in the money flowing from banks to small businesses. At Small Business Trends , he shares this chart: Read Chart of the Week: Are Small Business Borrowing Needs Being Met? here .

  • Clevelane Fed: 'Continued Weakness in Small Business Lending'

    Small businesses are still having trouble getting loans. Take a look at the trend for business loans under $1 million over the last decade: And of the loans under $1 million, most are under $100,000: These charts are from a recent post by Matthew Koepke and James B. Thomson of the Federal Reserve Bank of Cleveland . Koepke and Thomson took a look at the decline in small business lending, and found a lot about which we should be concerned: in particular, the decline in the smaller loans. From the 2000 to 2008, the increase in small business loans was driven by an increase in the number of loans made. The general decline in the average small business loan made over this time period was due in large part to strong growth in the number of loans under $100,000. While the average growth in the small business loan portfolios of banks and thrifts through 2008 was 13 percent, the number of loans under $100,000 grew 14 percent compared to 6 percent and 7 percent for loans between $100,000 and $250,000 and loans between $250,000 and $1 million, respectively. From June 2008 to June 2010, the shrinking small business loan portfolios of FDIC-insured institutions have been driven by a combination of shrinking loan balances (falling 4 percent a year) and declines in the numbers of loans (falling nearly 9 percent a year). Again, the reversal of growth in the number of loans has been driven by the decline in the number of loans under $100,000, which declined nearly 10 percent a year between June 2008 and June 2010. In comparison, the number of loans between $250,000 and $1 million fell only one percent a year and those $100,000 and $250,000 fell only 4 percent a year over the same time period. Read the full article here .

  • 60 Minutes: Bernanke on Unemployment, Small Business Lending, Quantitative Easing

    In case you were wondering, Federal Reserve Chair Ben Bernanke is not pleased with the pace of the recovery. In an interview with Scott Pelley on 60 Minutes last night, Bernanke expressed concern that it may be "four, five years" before we see unemployment drop to "normal" levels ("in the vicinity of say five or six percent"). Bernanke spoke with Pelley from The Ohio State University , and he covered many issues beyond unemployment, including quantitative easing, and the lack of lending for small business. You can watch the full interview 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:

  • Small Business Owners Continue to Struggle for Loans

    As CNN Money 's Catherine Clifford reports, small business owners are still waiting for a thaw in credit, and big banks do not appear to be moving in the right direction: Eleven top TARP recipients -- including Wells Fargo, by far the nation's largest lender to small companies -- cut their collective small business loan balance by more than $2.3 billion in December, according to a Treasury report released late Tuesday. The drop marked the eighth consecutive month of declines for the 11 banks. In that time, their total loan balance has fallen 7%, to $169.4 billion. Seven of the reporting banks have cut their small business loan balance every single month. Read The lending crunch: 'It is very hard to survive' here . So it isn't any wonder that optimism among small business owners continues to be low. The National Federation of Independent Business Optimism Index is now at 89.3. That's up from last year's low of 81.0 in March, but continues to indicate, as NFIB economists William C. Dunkelberg and Holly Wade write, that "small business owners entered 2010 the same way they left 2009 – depressed. Here's the Optimism Index trending since 1975: Read the NFIB report here .

  • Small Business Administration Sees Growth in Loans

    In the two years of the recession, and especially since September of 2008, the key struggle for many small business owners was access to credit. But that may be slowly changing. CNNMoney is reporting that the Small Business Administration's key lending program saw a significant rise at the end of the year. The SBA processed 12,393 loans through the program in the last quarter of 2009. That represented a 38% increase over the previous year. Still, loan activity falls well short of pre-recession levels. From Catherine Clifford of CNNMoney: The SBA credits the improvement to a slew of stimulus measures. "The big takeaway that we have when we look at this is that we were successful in turning around the SBA lending," SBA spokesman Jonathan Swain said. Still, lending remains far behind pre-recession benchmarks. Two years ago, in the last calendar quarter of 2007, the SBA backed more than 20,000 small business loans. "While there are some indicators that the economy is moving in the right direction, no one would say we are out of the woods yet," Swain said. A lagged recovery: SBA loans represent a tiny portion of the overall small business lending landscape, but they're an important barometer of banks' willingness to extend credit to startups and growing companies. The SBA program guarantees a portion of the money banks lend to qualifying businesses. If the borrower defaults, the government pays the bank back. Credit conditions for large businesses have largely returned to normal after the dire credit crunch that followed Lehman Brothers' collapse in late 2008. But small businesses have not enjoyed the same recovery. Sales are down at most companies, and the value of assets typically used as collateral -- like real estate and goods in inventory -- has fallen. That leaves many banks reluctant to lend to borrowers they view as risky bets. Read Small business lending begins to rebound here .

  • 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:

  • SBA's Karen Mills Responds to Questions About Access to Credit

    Karen Mills Administrator for the Small Business Administration, and Treasury Secretary Timothy Geithner will be holding a forum with business owners tomorrow to discuss small business financing. In advance of that forum, Mills responded to questions from small business owners in a live chat yesterday. The majority of the questions focus on access to credit and SBA backed loans:
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