As President Obama shares with us the State of the Union tonight, there will be no surprise when he says creating jobs is numero uno! What we’re not likely to hear, however, is that until there is an end to the unprecedented drop in credit lines and loans to small businesses like ours, he can kiss off significant job growth.
The decline in bank credit to small businesses has been so large that it's unlikely to return to pre-recession levels for many years. That’s the scary viewpoint offered in Bloomberg Businessweek by Scott Shane, professor of entrepreneurial studies at Case Western Reserve University. “To thaw the ongoing freeze, policymakers need to understand how much small business credit has evaporated . . . and why,” Shane noted.
To illustrate: The Federal Financial Institutions Examination Council has looked at millions of loans to businesses with under $1 million in revenue (IRS says 95 percent of businesses generate under $1 million.) The data shows that in 2009, banks originated $73 billion in small business loans, down 47 percent or $64.6 billion less than in 2007. Similarly, an extreme drop occurred in the number of loans made to small businesses. In 2007, 5.2 million loans were originated while in 2009 only 1.6 million new loans were made, a drop of 69 percent!
Moreover, Shane contends the banks had been moving away from lending to Main Street businesses even before the recession, favoring lending to large businesses. The recession dramatically accelerated it.
Speaking at the annual meeting of the Lake Erie Marine Trades Association in Cleveland last week, Bill Thompson, a veteran recreational lending expert at Cardinal Points Network (www.CardinalPointsNetwork.com), essentially concurred with Shane’s findings. “Virtually all the big guys bailed on marine lending,” Thompson agreed. But while Shane’s focus is on government policymakers recognizing what’s happening and somehow addressing it, Thompson sees marine dealers who, he contends, can take action into their own hands. Local banks are the immediate future, he told the LEMTA members, but it’s up to each dealer to make the right moves.
“In a word, it comes down to ‘relationships’,” explained Thompson. “Dealers who have had long-standing relationships with their local banker have found money during this recession. Those dealers who don’t have any such relationships need to get moving in that direction now."
Thompson pointed out it’s not something that’s going to instantly happen. Dealers can’t expect to walk into a local bank and quickly make a friend for life. The relationships are built over time. The process begins by acquainting a banker with your business. You may have a head start by checking to see if an existing customer (hopefully satisfied) is a banker.
Once acquainted, you really must educate the banker about the marine business. Most bankers don’t know much about us. To help, there is abundance of good material available from the National Marine Bankers Association. There’s a guide on how to build your relationship. There’s information for bankers. Get those materials (www.marinebankers.org) and give the appropriate ones to your local banker.
According to Thompson: “It’s proven that good marine portfolios have low risks and healthy yields. So, you’re acquainting the banker with a genuine business opportunity.”
Contrary to all the rhetoric, policymakers haven’t been very successful so far in stimulating credit to small businesses. Further, regardless of what’s said in the State of the Union tonight, it’s not likely to change soon. Accordingly, dealers must engage or re-engage their local bankers . . . there’s help from NMBA . . . and, there’s no better time to begin that now.