About the $30 billion added stimulus … Did anybody bother to ask small businesses or their banks ?

Punch line: Yesterday, the President was touting his next great stimulus package — ostensibly to help small businesses.

But, the $30 billion small community business lending program faces a big challenge: many of the community banks and businesses it’s supposed to help don’t want it.

* * * * * 

The legislation contains a mix of tax cuts and credits aimed at helping small businesses. The centerpiece of the bill is an effort to make billions of dollars available to community banks for loans to small businesses.

It seems like a simple effort to unclog a credit pipeline that has been blocked since the financial meltdown two years ago.

But interviews with community bankers, as well as small business owners, show a reluctance to participate.

Bank executives say their customers don’t want loans, even at low interest rates, because the sluggish economy has chilled expansion plans.

Some say the federal money isn’t worth it because they fear it will come with too many strings attached, too much regulatory oversight, and too much uncertainty.

“The rules can be changed any time.”

“We have taken a strategic decision not to have our primary regulator, the government, also be a partner in our bank.”

The fears stem from what happened under TARP, the Troubled Asset Relief Fund, formed at the height of the financial meltdown to pump money into banks. Banks that accepted TARP money had to later cut dividends to shareholders and limit compensation to top executives. They were also penalized for early repayment.

Banks said they already has enough capital to meet the paltry demand for loans.

“Our business customers are mired in uncertainty and are reluctant to invest in their businesses”

91% of small business owners surveyed said all their credit needs were met. Only 4 percent cited a lack of financing as their top business problem.

Plans for capital spending were at a 35-year low.

“The crucial questions facing business owners are does it make sense to make an investment right now, and will it generate positive returns?”

“Many of our clients, business owners, put their projects on ice in 2008 because their job number one is to see their company through to the other side of this economic crisis.” 

Source: Associated Press:

One Response to “About the $30 billion added stimulus … Did anybody bother to ask small businesses or their banks ?”

  1. TK Says:

    So we can agree that the lack of consumer supply is the problem, not “government interference”? That said, I am sure some banks and borrowers will benefit. Fine.

    The fact is that consumers are de-leveraging. They are not looking to take on new debt. Exactly the reason direct stimulus spending – not easier credit – was the proper government response to the crisis. Now you are throwing the lack of demand back in Obama’s face? Classic!

    The TARP analysis is also way off the mark. Why on earth SHOULD the government allow struggling institutions to borrow money from taxpayers and use that money to pay dividends or bonuses?!

    TARP was designed to help banks absorb the cost of bad assets on their balance sheet. Not stuff the pockets of bank executives. It was also appropriate to attach a pre-payment premium. This was not the Government “changing the rules”, it is a traditional lending practice. I guess we shouldn’t be surprised the community banker was unfamiliar…

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