The Senior Loan Officer Opinion Survey on Bank Lending Practices Gives Insight If The Obama’s $30 Billion Small Business Plan Will Work.
The latest survey sheds some light on the current condition in the lending industry. What it reviles is a decline in demand for commercial real estate loans and an increase in loan standards.
The Obama plan sounds like a great idea, giving access to capital through the local community banks. The plan would call for TARP (Troubled Asset Relief Fund) fund that have been repaid to go to commercial banks for the purpose of lending to local small business owners. However, upon a closer look at the survey of senior loan officers, particularly of Other Banks (Other than large banks) shows some interesting numbers that could doom the Obama plan.
Two of the questions asked in the survey where, in the past three months has your standards for approving loans changed, and has the demand changed.
The standard for approving loans according to the survey has increased 28% over the past 3 months. In other words 28% of the banks have made it more difficult to obtain financing.
Another question that was asked of the Senior Bankers was if the demand has increased. 40% of the banks reported a decline in demand. The supply side seem to not be the problem. If small business was in need of capital this number would be increasing.
Robert Reich, the University of California at Berkeley economist and former Labor Secretary to Clinton, commented on the Obama’s small business plan
“Targeted help to small businesses is useful. But they will not and cannot succeed without consumers out there who have money in their pockets,” he said in an unconfirmed interview.
The conclusion is that it is harder to get financing and less businesses are requesting loans. Although this is raw data that is on the Feds Website and can be contributed to many different factors, the numbers are showing a struggling commercial loan market.
Having more capital to lend will not be the answer. Many small businesses are looking for paying customers. Consumers spending money at local business will increase demand for loans, not more money to lend. Although the conditions could change, supply side economics many not work for the current President like it did with Reagan.
Read more about the Obama $30 billion small business plan
