Business loans: Community Banks Increase Small Business Loans part 1

Community Banks Increase Small Business Loans part 1

June 23rd, 2009

admin

About six months ago, David Klein, owner of Scientific Fire Prevention & Environmental Services in Long Island City, N.Y., decided to apply for a bank credit line because he was concerned about the tottering economy. Klein says he approached a handful of large banks including HSBC (HBC) and Washington Mutual (JPM) about his healthy, $9 million, 100-employee cleaning services company. He initially garnered interest, but soon found himself lost in bureaucratic shuffles. As talks continued, Klein became frustrated with the length of time it took to receive term sheets. When they did arrive, he found most of the terms "vague and unfavorable," and he had difficulty reaching bank staff. As the economy continued to crater, Klein decided he didn’t want to do business with a bank that not only had poor customer service but one that might also be saddled with toxic assets.

Then Klein met the chairman and CFO of Cross River Bank, a small, recently opened community bank in Teaneck, N.J. Within three weeks of meeting about a credit line, Klein received a term sheet and not long after secured a $750,000 revolving line of credit. Compared with his previous experiences with larger banks, Klein was pleased. "They were easy to get a hold of and responded quickly to anything that we needed," he says. "We were able to negotiate things on the term sheet to the point that we were comfortable."

As the credit freeze continues and the recession deepens, many community banks, generally defined as having less than $10 billion in assets, are reporting an uptick in loans and credit lines to small businesses. At a congressional hearing on small business and the economic recovery earlier this month, economist Paul Merski, of the Independent Community Bankers of America, a Washington (D.C.) trade group, told lawmakers that community banks make 20% of all small-business loans, even though they represent only about 12% of all bank assets. Furthermore, he said that about 50% of all small-business loans under $100,000 are made by community banks.