WASHINGTON-While the Obama administration and the President himself have placed much of the blame for the sluggish economy on bankers unwilling to lend, a number of analysts say much of that blame is being misplaced, arguing that many of the commercial loan applications banks are seeing continue to be of underwhelming credit quality.
"The basic story is that the banks have plenty of money to lend, but just not many bankable applicants," William Dunkelberg, the chief economist for the National Federation of Independent Business, which represents the interests of small and midsize companies, told American Banker, an affiliate of Credit Union Journal It has been 35 years since businesses were this reluctant to boost inventories or consider capital expenditures; "the firms that should be borrowing aren't there."
Dunkelberg is in a unique position to weigh both sides of the issue, serving as the chairman of Liberty Bell Bank, a $171 million-asset bank in Cherry Hill, N.J. He acknowledged that banks have reined in credit. "It's natural to do that during a recession," he said. "The banks have learned what happens if you don't have solid underwriting standards."
Dunkelberg and others told American Banker that the government must do more to address unemployment, waning consumer confidence and uncertainty among small-business owners. Doing so might create a need for expansion, which could lure more creditworthy borrowers to lenders.
In the third quarter, the volume of small-business loans on banks' balance sheets fell 0.7% from the second quarter and 2% from a year earlier, to $761 billion, according to data collected by the Federal Deposit Insurance Corp.
That's important because the nation's 27 million small businesses employ roughly half of the private-sector work force and account for about $1 trillion in debt, Federal Reserve data says. Those companies rely on banks for 90% of their financing, compared with 30% for midsize companies and corporations.
But NFIB data supports the view that those businesses have more on their minds than getting loans. A November survey of the group's membership found that only 4% of small-business owners viewed financing as their top concern, and roughly 10% reported problems getting a loan. In comparison, a third of the respondents said their greatest worries center around weak sales.
John Asbury, head of business banking at Regions Financial Corp., is witnessing the decline firsthand. The $140 billion-asset Birmingham, Ala., company's pipeline of loan applications is two-thirds what it would be under more normal conditions. "We have seen some pickup from a first-quarter trough, but we are rebounding off a very low base," he said. "Our most sound clients … are unwilling to make investments because they are unsure about demand for their own products."
