Big Banks V. Small Banks: Where Are The Loans For Small Businesses?

Posted on January 11, 2012

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One major question in the world of small businesses is, “Are big banks lending enough to small businesses?” Generally speaking, the big banks, such as Bank of America, Citigroup, J.P. Morgan and Metlife, would answer that they are supporting this new era of start-up entrepreneurship. However, many small business advocates feel that loans have significantly decreased since the beginning of the recession in 2007. A recent Wall Street Journal piece looked at both sides of this debate.

Ami Kassar, the founder of MultiFunding, LLC found that, “bigger banks shed $93 billion of small business loans during this period, while the smaller banks increased their small business loan balances by $17 billion.” Kassar feels that despite these findings, big banks use marketing tactics as a ploy to appear that they are giving more money to small businesses. He says that the 73% of small businesses that do not apply for big bank loans refrain from doing so because they assume they will get rejected.

On the other side of the debate, Marc Bernstein, the executive vice president at Wells Fargo, feels that his bank in particular is especially helpful for start-ups and small businesses. He argues that big banks such as Wells Fargo have been adding more careful consideration to their loan process to ensure that they are not supplementing extra burdens by adding more debt to companies experiencing little profit. Bernstein also attributes the current economy to the lag in loans; however, he feels confident that Wells Fargo, among other banks, is working to expand its small business support. “[D]uring these difficult times, more so than ever, Wells Fargo and many other banks are trying to stretch in whatever ways we prudently can to put credit into the hands of small business owners,” he says, confirming the widely-held belief that big banks must play a hand in restoring the current economy.

Both sides of the debate acknowledge that there is a credit crunch due to the recession, but also encourage entrepreneurs and small business owners to keep the faith.

As for those entrepreneurs and small business owners, the lesson appears to be that if at first you don’t succeed in procuring a loan with a big bank, try a smaller bank to secure your capital needs.

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