The credit crisis is over - bull
Written by Michael Vass
Recently I was having a conversation with several associates of mine. They range from across the country, but mostly in the Northeast. Several have standard businesses, and a few have internet based companies like myself.
The topic of conversation was the economy. If it’s improving, where and how fast. Overall the impression is that things are not getting much more stable. This flies in the face of the latest presentations of success that the media and the Government are trying to imply. Thus we all need to be cautious.
One example is an associate that recently went for a loan. The business is a small one, revenues are under $250,000. The loan amount was under $50,000. The company has been in operation for over a decade.
My associate went to a regional bank. This bank holds several account of theirs, including a business account that was started shortly after the business started. The bank in question took no TARP funds, and is in stable condition.
The business loan was denied. The reason was that the business was valued significantly below what the bank felt was reasonable. But there was a chance that my associate could get the loan under a personal basis. That is, if they could claim that at least half the funds would go to home improvements. So it was tried.
That loan was also denied. Because my associate had no debt. Let me clarify that. My associate is older than me, and owns a home. They operate their business with cash on hand, no credit lines. They have no credit cards, as they had become massively in debt back in their 20’s. It took my associate a decade to payoff all the debt and mistakes they had made. But they never went bankrupt. Still they decided to never own credit cards again.
So, because my associate has a minor stock portfolio and no history in credit cards they are considered a bad risk. That is opposed to their credit rating which is 725. And the fact that they have maintained an account with the regional bank, only bouncing checks 3 times recently when a client’s funds bounced. that was quickly resolved, but still hit the account.
So how good is this economy? Not that good at all. When banks that have no problems, look at old customers and turn them down for minor loans there is a problem. When people are turned away from creating or expanding businesses because they don’t already have debt, because they fixed their credit, that is a problem. Seriously, the bank in question stated that if my friend had a couple of credit cards, and/or an outstanding car loan, they would have approved the loan.
Now this may be just one bank. it may be an exception to the rule. But I don’t think so.
Right now, many banks have funds that could be loaned. There are many small businesses that would love to expand in this troubled market. But banks won’t do it. It’s not a question of cash on hand. The billions from the Government have assured that. Banks just don’t trust anyone.
If small businesses are being forced to stand still, while the Government targets them for higher taxes, what do you think will be the result?
Right now, it is easier to raise $500,000 than $50,000. But what if your business doesn’t need $500,000? What if that is too much money? What if raising that much placed the company into a situation that is detrimental to the growth of the company due to the terms attached to that much cash?
As long as small businesses, established companies, are being denied the chance to grow the economy is not growing and will likely falter.
If mom and pop are being squeezed by the credit conditions out there, average Joe will be too. Which means that any improvement is a house of cards, waiting for the wind. No matter how much money is pumped into bank coffers, no matter how much large corporations get pushed around by the Government. If small town America can’t get the opportunity to do what it needs to, everything fails.
Perhaps I am too cautious. Maybe the people I speak with are exceptions. Maybe things just need more time. But that’s not the message in the media and the Government.
Do you see the current trend of praising the rush to push businesses by the Government as good? Do you see small businesses growing? Do you see more or less security in your small towns?
I say it’s hype, and that’s dangerous. What do you say?
