Small businesses still looking for aid
Small businesses are still looking to installment loans to carry them through until the rocky economy stabilizes. The U.S. market has made it difficult for small business owners to find funding. Many are closing their doors, as they feel the crunch of the recession. However, there are a greater number of hopeful business owners who are looking for ways to wait the economy’s downturn out, and once again flourish as a result.
Bank of America
Bank of America saw a profit in Q1, which is the good news, although their stocks fell 17%, which is the bad news. Analysts say the profit created was a benefit of unusually strong bond trading, however this is not expected to last, and cannot be relied upon, as the loan industry reorganizes.
Some banks are seeing a profit, but that can no longer be interpreted from a solely “good/bad” perspective. Because of the economy, there are many other factors when assessing the banking climate. One analyst, Bart Narter stated, “Bank of America is no longer exclusively a retail bank and there can be more fluctuations.”
Looking deeper into the finances of Bank of America shows a more accurate picture. They did increase revenues, however troubled loans and under-performing assets increased from $7.8 billion last year, to $25.7 billion this year. They also lost another $1.8 billion on card services. CEO Ken Lewis stated, “Credit is bad and we believe [it] is going to get worse before it will eventually stabilize and improve…whether that turn is later this year or in the first half of 2010, I’m not going to hazard a guess.”
When banking giants recognize credit problems, that means they will be less and less likely to extend loans until the market regains stability. Small businesses will need to look for alternative ways to procure funding, such as personal financing, installment loans and selling of assets. Bank failures put small businesses in precarious positions.
How the stimulus factors in
Bank of America received $45 billion in funding from the Treasury Department’s rescue package. Despite a huge stimulus, the debt accrued by the bank is enormous. Using the money wisely to aid in handling debt will be key to their bounce back. One advantage is that they own 17% of the common shares of the Chinese bank and analysts expect that to bring in an additional revenue of $27 billion. It’s this “extra” money that will ultimately make the recovery more efficient, and more expedient.
They also added a provision to their financials, citing a $13.4 billion estimate of credit losses for Q1. This proves that large banks like Bank of America are in no way immune to the credit disaster and growing unemployment rates. In anticipation of future losses, the bank also set aside $6.4billion as an additional reserve of funding.
Small businesses are on their own for funding
In the past when a person needed money, they went to the bank. That is no longer the case as every entity within the banking industry is suffering to maneuver through the recession. Despite huge stimulus advances, banks are still trying to recover as best they can and prepare for the damage still to come.
No one has a true idea of what is still around the corner as the economy is revived and no one can tell how much damage is still waiting to be suffered. All that is for certain is that small businesses and consumers will have to look to funding options outside the bank’s walls, such as installment loans, families and sales of collateral, until the banking disaster is over.
$250,000 may not be as rich as a lot of people think. Granted, when the average family only pulls in $50,000, then it’s hard to summon a lot of sympathy. But consider the fact that location has a lot to do with it. If a family lives in an area, with a $250,000 annual income, where the average home is $150,000, then they’re doing well. But if it’s someplace like New York City, where the average monthly rent is close to if not over $2000, then it doesn’t seem like that much. Consider also that people who make that kind of money are often doctors and lawyers, and a lot of doctors and lawyers are in VAST amounts of debt for their education, over $100,000 in total, never mind their undergraduate degrees. (Doctors have the added bonus of malpractice, and attorneys have bar membership dues and so on.) $250,000 before taxes and then everything else may not be as much as you’d think.