Small Businesses Need Installment Loans to Find Funding

Community banks are suffering because of the excess of Wall Street firms

Small businesses are going to need to look into installment loan options as the economy balances itself out. According to Camden Fine, president of the “community banks account for 45 percent of all small business loans. They are the engines of Main Street.” Unfortunately community banks’ reputations were tarnished with the focus on bigger financial institutions who were managing unscrupulous lending policies during last year’s loan explosion. Small banks are protesting, stating they had nothing to do with the excess of Wall Street firms and risky investments but they are under the same criticisms, and even bigger penalties.

Small banks are under scrutiny

Community banks are also feeling a backlash of bad behaviors of Wall Street investment firms. They are under the same tight analysis as the entire banking industry but the $767 bailout package is catering to large banking institutions. Small banks are under the same microscope, but with a much smaller benefit. In addition, there is an assessment the government wants to charge all members of the banking community to build the Federal Deposit Insurance Fund; the same fund that large banks drained.

According to Fine, many community banks are choosing to wait out the economic downfall in lending. They are turning to other revenue-generating practices to make ends meet, but staying far away from lending practices. Businesses who formerly looked to small business loans as a means of underwriting, now have to look to installment loan options for additional resources.

Critics of government handling of the banking industry

Bank consultant Bert Ely claims that there is a “disconnect between Washington and banks across America.” Although the government is encouraging banks to lend, good borrowers are not the ones applying. Because of the economy, everyone is cutting back, including the perfect applicant for a business or personal loan. Needs are being put off until the economy improves and qualified borrowers are few and far between.

Ely also notes that over $10 billion of the $17.8 billion loss of the FDIC last year came from IndyMac bank in California. To recharge the FDIC all banks are being charged an emergency assessment. The FDIC needs to maintain 1.15% of the total deposits and is looking to the entire banking industry to compensate. However the entire banking industry did not drain the fund in the first place, leaving pundits to ask, “Why are community banks paying for the sins of Wall Street banks?”

The little banking woes

Vice president of Brenham National Bank in Texas, Connie Rohde says, “For years we community bankers have fiercely competed with big guys for every deposit to remain in business. These irresponsible banks were making big profits, while we struggled to stay alive…and now you are demanding us to bail them out.” Small bank’s frustration levels are running high. The assessment they are being asked to pay will be 20¢ on every $100 of deposits, up from the average of 6.3¢.

What this means to the small business

To the small businesses in the community, this means that borrowing will be difficult. Even good-credit borrowers will have to wait in line to see if their applications are accepted. In the interim, there are small businesses who still need funding to manage and will need to look to alternative methods of getting money, such as installment loans, to make it through. These may provide business-saving answers to organizations struggling to outlast the harsh economy.