Posts Tagged ‘Lending’


Monday, January 17th, 2011

On January 13th I attended an FDIC held Small Business Lending Forum in Washington D.C which brought policy makers, regulators, small business owners, lenders and other stakeholders together to discuss the obstacles in small business lending. The forum raised more questions and problems rather than provide any substantive answers on how or what needs to be done to stimulate lending for small business…

While it was very encouraging to hear the more optimistic outlook from Chairman Bernanke on the economy, as well as an optimistic assessment of the regulatory environment from Chairman Bair, the lack of an effective plan to stimulate small and startup businesses was evident.

 There were some common thoughts and themes:

  •  There is a lack of early stage capital
  • Strong banks continue to lend
  • We need a better appraisal process
  • Banks should be relying on strong underwriting instead of collateral based loans
  • Need to remove the uncertainty in the financial sector
  • Real estate is the colateral basis for most small business loans


No one addressed the issue of how to provide loans to a small business that either does not have collateral, or has collateral value that is now impaired, and where cash flow is impaired because of the economic maelstrom.

If we are to support the small business sector, government will have to get involved and create the incentive to do so.

Most small and new businesses in one way or another rely on real estate to support their ventures…

Some facts:

  • 95% of small business owners own their own homes
  • 50% own the building or property that they run their business out of
  • 60% own investment real estate


Clearly, real estate plays an important role in the life of a small business owner…

If businesses want to use the equity in their homes or other commercial real estate, why can’t the Federal Reserve allow for a future appreciation right to be attached for the purpose of creating capital? The warrant would self liquidate by granting a tax incentive or credit for any future profits of the business..Over a long enough time horizon, it is hard to imagine a scenario where the Fed would actually lose money.

Banks would receive a fungible source of collateral, the small business owner would get the funding they need, and the cost to the system would be negligible, or if done right, nil…

Lend, lend, lend…

Saturday, December 19th, 2009

President Obama and Fed Chairman Bernanke call for increased lending from all banks…  The fact is, demand for loans is decreasing for both qualified business and consumer borrowers. Calling out for banks to lend more is akin to pushing on a string… The real question is who is willing to make loans to those that are in need? The largest national banks are using the wide spread in the yield curve that Fed Policy has created to make tremendous returns without having to take any risk in making loans. They borrow at near zero to buy long dated Government backed securities and make a guaranteed spread. On the other hand, community banks like our own North Jersey Community Bank have actually benefitted by taking a larger slice from this shrinking pie of lending… Community banks are currently the only segment of the industry that has actually increased lending, especially to small business.  50% of loans made to small business under $100,000 are made by Community Bankers, as well as 33% of small business loans under $1,000,000.

But as the Administration says lend, lend, & lend, the banking regulators are busy pushing banks to increase loan loss reserves, increase capital levels, increase classification of non-accrual loans, and have made any loan where a commercial building is involved a four letter word.  This pressure is precisely pro-cyclical, reducing capital which in turn reduces a bank’s ability to lend; remember for every $1 in capital a bank has, it can lend approximately $12 while maintaining an 8% capital ratio, a very conservative number. Banks are considered to be “Well Capitalized” when they have Tier One Risk Based capital of 6%, yet some banks are being pressured to operate at much higher levels of 8%, 10% or higher. 

This disconnect has to end. While I certainly understand the calls for additional lending, as well as the conservative stance being taking by regulators, if we hope to help small business in this country, all the interested parties need to get together and work toward a plan that will accomplish a unified goal. It is a known fact that 70% of new jobs are generally created by small businesses, and that the banks that best understand those businesses are Community Banks. Government should create programs that will provide loan guarantees, government debt subordination, tax free interest for community banks that lend, streamlined loan application process, and tax holidays for Community Banks that provide a certain level of increased lending…Regulators need to be a part of this process and create some temporary relief for paying & performing loans that may be stressed, capital requirements for well run institutions, and work in partnership with the Administration and the 8,000 Community Banks that are suffering from the macro effects of the irresponsibly that has produced this economic and financial mess.

Together, we can rebuild our economy and get back on track to create the much needed jobs that have been so elusive…

The Responsibility of Lending….

Monday, May 18th, 2009

The news these days is filled with concern that banks may not be lending enough, as if it is the banks responsibility to seek out and discover new lending opportunities whether they are needed or not. While it is true that lending plays a very important part of our economic fabric, prudent lending has become passé to some…

 In fact, some of our customers at North Jersey Community Bank would tell you that we have consistently been a conservative, prudent, but understanding lender, and in many cases counseled them to borrow less, by demonstrating that their ability to repay should determine the level of indebtedness, which may have been one of the reasons for their survival in these financially strained times. Some learned that “the best transaction may have been, the one they didn’t do.” Others appreciated the fact that they could rely on us even through these times, as it is better to have a smaller line of credit that can be counted on, as opposed to having a much bigger line of credit which would ultimately and indiscriminately, be pulled because you should not have received it in the first place, or discontinue funding a project because the bank needs to shrink its balance sheet without regard for you the customer,  as some of our  competitors have done.

Equally as compelling is the number of potential customers who chose to go to other banks and financial institutions because the lending was cheaper, looser, without advise, and truly created “a be careful for what you wish for” scenario that has jeopardized their businesses, and may ultimately be the reason for their demise. It is these same individuals who now return to seek our counsel on how to unwind the onerous debt position that they have created.

Both of these groups now understand that part of their banker’s job is to be the “trusted advisor” that we so proudly advertise. We look not just to complete banking transactions, but to create long lasting customer relationships, and as in any good relationship, that sometimes means saying no…

This is a lesson that I believe everyone needs to understand… We have just come though a time when “no” was not an accepted alternative.. People bought houses they couldn’t afford, bought TV’s on credit, went on vacation on their credit cards, dined at restaurants too expensive because they could charge it, and for the most part, spent more than they could ever afford.

Banks, borrowers, and the economy in general, will benefit much more with a sustainable amount of debt supplied to the economy.  It is the responsibility of the banks, all banks, to understand the role that they must play in order to support the economy, and businesses or consumers should seek out banks that look to share, and have a vested interest, in their growth and success…

Both will be much better off…