Survey may explain lack of interest in small-business loans

I frequently pass a billboard advertisement by a small community bank that says something like  “We have money to lend … and the will to lend it.”

Local banks have tried to distance themselves from troubles in the industry. Photo by Flickr user Gino

It piques my curiosity because — as well all know — since the recession a refrain about our economy has been that ‘credit is hard to come by ‘ and that more lending to small businesses would stimulate job growth, and so on.

But it seems that for all the billions of dollars in community-lending programs out there, not much lending is getting done.

As the Wall Street Journal and other news organizations have pointed out in recent days, a lot of the federal dollars earmarked for small business loans (via community banks) instead instead have gone to repay higher-interest TARP loans.  Not to mention, only  a fraction of available funds have been claimed, the Journal reported:

Of 332 banks that received money through the lending fund, 137 used at least a portion — totaling $2.2 billion — to pay off their TARP obligations, Treasury Department data reviewed by The Wall Street Journal show.  Of the total $30 billion available in the fund, only $4 billion in loans to banks were approved.

And in another blog post, the Journal notes that Treasury Secretary Geithner says he was surprised by how few banks applied for the funds that were intended to help local companies.

Maybe he should check out the latest survey by the National Federation of Independent Businesses, a national industry group for small business owners.  They’re just out with a really interesting Small Business Economic Trends Survey, and some of the commentary might provide a clue as to why banks weren’t stampeding the fed for the small-business lending funds.  Considering all the hand-wringing about lack of access to credit, etc., the past few years, I was rather taken aback to read the following in the NFIB’s survey overview:

Ninety-two percent reported that all their credit needs were met or that they were not interested in borrowing, while only eight percent reported that not all of their credit needs were satisfied. Fifty-one percent of those surveyed said they did not want a loan. A net 10 percent reported loans “harder to get” compared to their last attempt (asked of regular borrowers only), down 3 points. The weak recovery provides little incentive to borrow to support expansion or buy new equipment, even if interest rates are low.

Yikes! If more than nine in 10 small business owners aren’t having a problem with access to capital, why on earth is the government ginning up program after program to incentivize these small companies to borrow?  No wonder.  I think that statistic is well worth testing locally with your own informal survey of Main Street businesses, small factories in your area’s industrial corridor, service providers and your region’s tech hub.  Who does want to borrow, and what are they experiencing?  Who isn’t seeking any loans, and what do they make of the federal programs?  What WOULD encourage them to borrow and hire?