I saw an article in the Wall Street Journal today talking about measures being taken by some banks in the USA to reach out to small business customers. There was a nice anecdote about an enterprising branch manager walking with a customer around the supermarket to discuss his borrowing needs. The same article mentions a study estimating a 70% third quarter drop in lending from pre-crisis levels. While one survey found that small businesses were not interested in borrowing, another found that a significant percentage of businesses were either denied credit or expected to be unsuccessful.
While there are promising examples of banks trying to kick start small business lending, it seems to be just that – a start towards easing liquidity.
Another Wall Street Journal article posted two days ago describes a different picture for Europe, using the phrase “insoluble conundrum”. In this case, the issue seems to lie with increased risk sensitivity (i.e. tougher credit conditions for small businesses to meet) and changing attitudes. Banks cite government pressure on banks to be more risk averse as the key reason for tougher credit policy. Lenders want the business, they just want it less risky and more profitable.
More aggressive lenders are seizing the opportunity to gain market share and endear themselves to customers. A UK lender proudly talks about an 80% acceptance rate, however adding that lending application volumes are significantly down and existing overdraft facilities are under-utilised. A trend “of two markets” that seems to be similar to what we are hearing of in the US.
Doomsayers predict that the impasse between tougher lending criteria and stretched business balance sheets will be difficult to bridge.
It is difficult? Yes. Insoluble? I don’t think so.
Public policy measures continue. Some lenders are making the effort, and will reap the reward (and perhaps, praise and hopefully a happier and stronger customer). Businesses (small and big) will have to do their part, but within in the conundrum itself lies its solubility. We need to be creative.