Chip Besse, a Colorado based business was looking for a small business loan, in order, to expand. Besse was confident of hiring one dozen people on getting $1.1 million loan. Wells Fargo & Co. did not co-operate to give Besse a loan. U.S. tax payers, however, came forward to help the bank overcome the 2008 financial crisis. It offered $25 billion loan and $9.5 billion debt guarantees.
Besse could find little success in 2008-09 when he approached sixteen other lenders that included JPMorgan Chase & Co., Charlotte and Bank of America Corp. Besse served as a partner in a London equity firm maintaining a credit score of 769 out of 850 and $185,000 as checking amount. The experience of Besse shows how difficult it is for small companies to find loans from private lenders. According to Small Business Administration, such little companies created 64 percent of total jobs in last 15 years.
Banks like Fargo, JPMorgan Chase and Bank of America have been backed by the U.S government to return back to health granting $189.3 billion in loans under the ‘Troubled Asset Relief Program and debt guarantees’ scheme. The grant is made through the Federal Deposit Insurance Corporation. Peter Morici, economist and professor, says, “We’ve created a system that encourages bankers to trade, not lend.”
But small businesses still claim that they are not getting adequate loans. New loans for small businesses fell 33 percent last year in comparison to 2008 that amounted to $191.6 billion only. Tighter credits have made it very difficult for entrepreneurs to hire new employees as it is estimated that 14.9 million Americans are still unemployed.
No Real Data Exists
All the three banks denied the allegation made by Besse, as they say that they did not track small business lending till last year. So, it becomes difficult almost impossible to gauge their recent volume and their performance. In the first quarter of 2010, JPMorgan Chase increased small business loans to 36 percent that amounted to $4.5 billion. Bank of America granted $8.2 billion that is a 1 % increase. Wells Fargo lent $6.6 billion to small businesses with annual revenue less than $20 million.
On the Face of Little Demand
The three banks that Besse approached claim that they are lending as much possible to small businesses as in boom years of 2006-07. But entrepreneurs say that their lending criteria has become very strict. “If the government had used the same lending criteria on the big banks that the big banks are using on us, the banks never would have gotten the TARP money,” says Carl Calhoun who found $400,000 in home equity for his Florida-based mattress company, Commercial Bedding Co. The credit crunch, however,
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to