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  • 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 .

  • 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 .

  • The Economic Crisis Backstory, Animated

    Here's a short animated video out of Europe from filmmaker Denis van Waerebeke . It is another simple explanation of one of the story-lines of the global economic crisis. Ecoland - Bubble story from Denis van Waerebeke on Vimeo . (Hat tip Barry Ritholtz )

  • Marketplace Whiteboard: Shadow Banking's Lasting Dangers

    Paddy Hirsch says shadow banking was, for the most part, left alone by Congress and the Obama Administration in regulation changes this summer. And that may be a problem. As Hirsch reminds us, shadow banking lends more money to more Americans than any other financial sector. He explains the potential danger in this Marketplace Whiteboard video: Shadow banking: still big, still dangerous from Marketplace on Vimeo .

  • 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 .

  • The Big Banks Are Lending, But Mainly to One Customer

    From the President, in his state of the union address, to small business owners around the country, everybody seems to be pressing for the banks to revive lending. Marketplace 's Paddy Hirsch points out that the big banks are lending, and making a nice bit of money doing so. But, he adds, it is all to "one very special borrower":

  • 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:

  • Comprehensive Look at the Top 25 Subprime Mortgage Lenders

    Since September, the watchdog organization Center for Public Integrity has pursued several investigations into the financial crisis, subprime mortgages, lending practices, and theuse of federal bailout dollars. And this week they share what these investigations turned up in a comprehensive online project titled Who's Behind the Financial Meltdown?: The Top 25 Subprime Lenders and their Wall Street Backers. The project centers on 25 banks that together accounted for nearly $1 trillion of the nearly $1.4 trillion--or 72 percent--in "high-interest loans" that were handed out between 2005 and 2007. CPI analyzed government data on 7.2 million loans for the project. The lenders include some of the nation's largest banks (and recipients of TARP funds) like Wells Fargo, JP Morgan Chase, and Citigroup that have or had subprime lending units. Other lenders were subsidiaries of major financial institutions. Here are some of the topline findings of CPI's research: -At least 21 of the top 25 subprime lenders were financed by banks that received bailout money — through direct ownership, credit agreements, or huge purchases of loans for securitization. -Twenty of the top 25 subprime lenders have closed, stopped lending, or been sold to avoid bankruptcy. Most were not banks and were not permitted to collect deposits. -Eleven of the lenders on the list have made payments to settle claims of widespread lending abuses. Four of those have received bank bailout funds, including American International Group Inc. and Citigroup Inc. CPI has developed some helpful interactive tools to get through all the data. For example, you can get information on one of the top 25 banks to the right. Click on company profile to access a series of maps that show where the company made its high-interest loans. Click here for the full report from CPI.

  • Marketplace Whiteboard: Shadow Banking

    The Federal Reserve tried to jump start nonbank consumer lending through Term Asset-Backed Securities Loan Facility ( TALF ) . TALF is aimed at hedge funds and investment firms--or "shadow banks." In this Whiteboard segment, Marketplace's Paddy Hirsch explains the importance of the shadow banking system in the US economy: Shadow banking from Marketplace on Vimeo .

  • OECD Report: 'Deepest and Most Widespread Post-War Recession'

    The Organisation for Economic Co-operation and Development released its Interim Economic Outlook report this week, ahead of tomorrow's G20 summit, and it is another dire report on the global economic crisis. The report's authors seem struck by the reach of the current crisis. The write, "the OECD economy is in the midst of its deepest and most wide-spread recession for more than 50 years." The OECD is made up of 30 different countries--mostly from Europe, but also major global economies like the United States, Australia, Japan, Canada and Mexico--and as the below chart shows, almost every member nation has had a downturn for at least the last two quarters: In the report, the OECD makes an urgent call for restoring confidence in the markets, and finding ways to unfreeze credit and get lending started up again. In the below interview, OECD Secretary General Angel Gurria emphasizes calls on G20 nations to focus on those goals at the summit tomorrow: Read the OECD's interim Economic Outlook report here, and a country-by-country analysis of the G7 nations here .

  • The Challenge of Securing Small Business Loans

    In today's LA Times , Cyndia Zwahlen reports on one California restarateur's success in securing loans backed by the Small Business Administration (SBA), and what those loans have meant for his business: Owner Indras Govender has had a triple helping of SBA loans since 1995, each used to serve up a new restaurant. In May, he and his wife, Tilly, got their latest from Community West Bank to transform their pizzeria into an eclectic lunch and dinner spot that features giant cupcakes and other desserts. The loan was crucial to their dream of becoming the first licensed outpost of Santa Barbara's Fresco Cafe, said Govender, whose restaurant employs about 33 workers. "A lot of us wouldn't qualify for a straight loan from a bank," especially given the credit crunch during the last several months, he said. But Zwahlen goes on to write that the while the Obama Administration has announced efforts to increase lending to small businesses by guaranteeing greater SBA backing of loans, there are several hurdles to clear before we do see a sizable increase of lending to small businesses: For one thing, most small businesses don't use the SBA-guaranteed loans that banks make. Although giants such as Nike Inc., Apple Inc. and Ben & Jerry's Homemade Inc. reportedly took out SBA loans in their early days, SBA lending accounts for about 40% of long-term small-business loans and only about 10% of traditional small-business bank loans, said Tony Wilkinson, president of the National Assn. of Government Guaranteed Lenders, based in Stillwater, Okla. In addition, potential borrowers and many banks have watched their creditworthiness drop in recent months. Borrowers may not be interested in or eligible for SBA loans under the tightened credit rules many lenders have rolled out -- guided in part by regulators. Lenders might be willing to expand their SBA lending under the new 90% guarantee for so-called 7(a) loans, but the higher guarantee means they will owe higher SBA fees, Wilkinson said. Such loans are the most common type guaranteed by the SBA and are used to start, buy, run or operate a business. You can read the full article here . Business Week has a weekly podcast with advice for small business owners, called Smart Answers . In this week's podcast, host Karen Klein shares tips for securing loans. Listen or download the podcast here .