Big Banks & Small Businesses

A couple weeks ago, the New York Times had an interesting piece discussing the stimulus plan’s SBA lending program, America’s Recovery Capital (ARC).

The article had a link to the list of banks which have made ARC loans. If you look at that list, you find something quite interesting: very few (and I mean *very few*) of the banks listed are big banks. In fact, as of August 24, only one big bank has made an ARC loan in Illinois, and that’s JP Morgan Chase, which made such loans in 14 states. Only one big bank has made an ARC loan in NewChase-Logo3.GIF York state (again, JP Morgan Chase) and only one in California (Wells Fargo).

So what’s the point, you ask?

Well, we all know that it was the big banks who received the bulk of bailout money and a handful of these same big banks had highly profitable second quarter results.

So I took a look at the list of bailed out banks and compared it against the list of banks who are approved SBA lenders in Illinois. Out of the 24 banks that received over $1 billion in bailout money (and which, collectively, received 89% of the bailout funds), 11 are approved SBA lenders in Illinois. Yet only one of those has made an ARC loan thus far in Illinois.

Bailout2.JPGI realize that the purpose of the bailout was not to make SBA loans or prop up small businesses through the banks. I also realize, and have heard from bankers, that many banks are hesitant to make loans to small firms and that business owners are somewhat reluctant to take on debt during a recession (smart move, owners).

I would hope and expect that these big banks would do more for small businesses, if for no other reason than to avoid continued negative PR. Banks should consider that the small business community is tight-knit with strong word-of-mouth, and by not lending to small businesses, banks undermine their marketing efforts that claim they’re helping their communities.

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