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Small-business lending drops in past two years

Loans: Report says lack of access to credit forces smaller companies to shed jobs

Posted: December 14, 2010 10:24 p.m.
Updated: December 15, 2010 4:55 a.m.
 

A report recently released by the California Reinvestment Coalition revealed that small-business lending in California from 2007 through the end of 2009 decreased by almost 1.5 million loans and $21 billion.

The coalition said that small businesses create more jobs than any other segment of the economy, but without access to bank credit, the small companies are shedding jobs and shutting down.

Lending to minority-owned businesses dropped even more dramatically in the time period — leading to serious implications to the economic well-being of these communities.

Leslie Starus, president and founder of Foodology, a Sun Valley business, said he has been in business for 30 years, but when the economy went downhill, his sales slowed down.

“Without access to a bank loan, I had to lay off 30 people earlier this year. That was half of my work force,” Starus said.

“I’ve since received funds from Valley Economic Development Center and I’m on track to rehire all of those employees.”

Steve Tannehill, director of the local Small Business Development Center, said the new Small Business Jobs Act of 2010, signed into law in September, will make small-business loans more available and more affordable.

Under the act, small-business loans will combine reduced fees with higher loan limits and guarantees.

The California Reinvestment Coalition report, released last week, covered a time period through 2009. Tannehill said he believes demand increased and prospects improved in 2010.

Los Angeles County
The coalition report shows a 75-percent drop in small-business lending in six California counties: Alameda, Fresno, Los Angeles, Sacramento, San Diego and Santa Clara.

The coalition said the drop in lending was even more severe for California’s hardest-hit communities.

“Taxpayers bailed out the banks to the tune of $700 billion and were promised that banks would increase lending to small
businesses,” said Alan Fisher, executive director of the California Reinvestment Coalition.

“These small businesses employ half of all Americans, but instead of saving these jobs, banks turned their backs on small businesses and neighborhoods across the state.”

The catch for small companies is that small-business loans are not designed to help or bail out failing businesses.

Tannehill noted that banks do have money they want to lend, but that in order to fund successful loans, the borrowing parties have to be capable of paying back the loans.

Additionally, banks have been challenged by more and more regulations. The SBDC can work with small-business owners to position their companies to be successful when applying for loans.

Big vs. small
The coalition report looked at the track records of big banks.

But not all banks are equal.

“We have an appetite for the small-business loan business,” said James Hicken, president and CEO of Bank of Santa Clarita.

Hicken said the bank is seeking an “uptick”’ in business this year.

A business owner can leave a bank discouraged by a bad experience that may have had nothing to do with the business owner or the business, Hicken said. Sometimes, the local banker’s hands are tied by corporate policies and lending restrictions.

“That same person might get welcomed with open arms at a community bank,” Hicken said.

The key findings of the coalition report are that SBA lending by all banks dropped by 71 percent in California from 2007 to 2009, representing a loss of $1.2 billion in funding for small businesses.

Bank of America, CitiBank and Wells Fargo decreased small-business lending in California by two-thirds between 2007 and 2009, leading to 500,000 fewer loans for California’s small businesses from those three banks.

In each of the six counties examined, conventional small-business lending dropped by 68-75 percent. Bank of America and Citibank decreased their conventional small-business lending by more than 80 percent in the six counties.

Only U.S. Bank increased its loan volume during the time period. The Signal was unable to reach a spokesman for that bank.

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