Dare I discuss another regulation? I certainly don’t want to make it a habit. But if you own a small business, you will probably hear about all this hype. The Small Business Lending Act of 2010 would make $30 billion available to smaller banks (assets under $10 billion) and provide them with favorable payback terms. The higher the bank’s increase in small business lending, the more favorable the payback rate becomes. I have to wonder though how effective this initiative will be. The smaller banks actually have plenty of money to lend right now, but what they really lack is a ready market of qualified borrowers. Underwriting standards have not been loosened, rather just the opposite. The banks are very concerned about how they will be rated by the regulators that they dare not cut any corners or take on any unmitigated risks. So what’s going to change with the availability of this funding? How does that make the business owners any more qualified to borrow? How does it help them improve their top line revenue and in turn their bottom line, and make them an attractive loan candidate for the banks?
My guess is that you will hear about how successful the program has been and how so many businesses have been helped by this action. I for one will be suspicious of these claims. Real growth in lending won’t happen until businesses get into a position to expand. That’s when the banks will loosen the purse strings.