Banks were first drunk with lending, and now are frozen like cowards. Small businesses with good credit histories are routinely being denied SBA loans. The L.A. Business Journal reports that Capital One Financial Corp. did not make a single SBA loan in 2009. I believe the we’re seeing a financial system in the pangs of withdrawal. First bingeing on quick ill-advised lending, the Banks now virtually have stopped lending by raising their standards to absurd extremes.
Irresponsible lenders contributed to the current mess, and now, by setting impossible lending standards, they are equally irresponsible. These extreme opposite bank behaviors are like opposite sides of a closing vice, with the small business person in the middle.
Japan went thorough a decade of stagnant economy in the 90s because it did not address this essential problem of banks freezing the flow of capital. Small businesses collectively employ more people than the mega-firms. Therefore, its time to administer a laxative to constipated lenders by setting moderate and functional criteria for lending though the Small Business Administration.
In personal terms, these dysfunctional banking decisions hurt the people I serve: the unemployed. My clients are needlessly competing for limited jobs with persons who should be employed by small businesses with access to needed capital. The human costs include depression, lack of medical care, and deterioration of family relationships.