Big Banks Don’t Want Small Business Loans
The country’s biggest banks have lost their collective appetite for making small business loans, forcing owners to run up credit card balances and turn to nontraditional lenders who charge seemingly usurious interest rates. That’s the gist of a recent article in none other than the WSJ. Credit unions are ready, willing, and able to help, of course, if only Congress would allow them.
According to the WSJ, the nation’s ten largest banks lent $44.7 billion to small businesses in 2014, down 38% from a peak of $72.5 billion in 2006. For years banks have argued that they would love to make more loans to Main Street but that loan demand just isn’t there. But this is contradicted by the fact that, according to the WSJ, small business are increasingly turning to their credit cards and non-bank lenders. These non-traditional loans from online lenders like Kabbage can include interest rates as high as 39%.
What is going on here? In a refreshing burst of candor, one JP Morgan executive mused that “You have to figure out a way to make a $100,000 loan make economic sense.”
Some quick thoughts before you start cyber shopping on company time: (1) The MBL cap isn’t just bad for credit unions, it’s bad for the larger economy; (2) If our banking industry has “evolved” to the point where loans to Main Street businesses aren’t cost effective for the banking behemoths then this is the latest disturbing example of a banking system run amok. We’ve created a banking system that isn’t all that interested in making loans to the businesses’ responsible for a good chunk of the nation’s job growth and innovation. It will never happen, but the best thing we could do as a nation is admit we made a mistake when we repealed Glass–Steagall.