Archive for June, 2012

Access to Credit & Diminishing Community Banks

Back in March, The American Prospect published an article on small business access to capital, looking at some of the reasons why it persists despite growth in overall commercial and industrial lending, increases in consumer confidence, and consumer purchasing power back at pre-recession levels.  The disadvantage for small  businesses is growing:

Though GDP has now surpassed pre-recession levels, the roughly $1.3 trillion in outstanding commercial and industrial loans at the nation’s financial institutions is nearly 15 percent below the levels of mid-2008, according to the Federal Deposit Insurance Corporation (FDIC). A recent analysis by economists at the Federal Reserve Bank of Cleveland showed that the decline was most severe in the small-business sector, with loans of less than $100,000 declining 18.1 percent and loans between $100,000 and $250,000 down 16.7 percent.

The latest data also showed that the small-business disadvantage is growing. In last year’s third quarter, overall commercial and industrial lending grew by $44.8 billion, or 3.6 percent, over the previous quarter for its fifth consecutive gain. But smaller loans (those less than $1 million) fell by $3.1 billion, or 1.1 percent, according to the FDIC.

One reason cited by the article is that there has been a coinciding decline in community banks. While the Troubled Asset Relief Program (TARP) provided aid to the largest banks in getting the bad loans off their books, it did little to help smaller community banks that were also dealing with bad credit. This led to greater oversight and tougher standards on community banks, limiting their ability to make more loans. The number of community banks has fallen drastically– 13.1 percent from 2007.

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June 29, 2012 at 3:50 pm 1 comment

Small Businesses & Uncertainty– Nothing New Here, Mostly

The Huffington Post’s small business section has an article today from Gene Marks on the ubiquitous claim of uncertainty by small businesses. He makes some good points about how uncertainty is a part of the deal when you set out to open your own  business. He also asks, when have things been certain?

Let’s say you were running your business anytime in the past forty years or so. What, things were less certain in the early ’60’s? With the threat of nuclear war, the steel industry fixing prices, escalation in Vietnam, soldiers shooting at college students, politicians murdered almost nightly, black people hosed in the streets, massive protests, the Carpenters music playing everywhere? Those were uncertain times. And did things really get better in the ’70’s, with high inflation, long gas lines, terrorism, a president who was forced to resign, Sonny & Cher? Were things any less certain under the reigns of Reagan, Bush, Clinton and Bush? Exactly what was done with that cigar in the Oval Office anyway?

Of course, things are never certain. There’s never been an easy time to run a small business.

This is true. Politics, the economy, life, etc is never a sure thing, and taking that leap into the unknown is part of what makes a person an entrepreneur.

However, I would argue that for some, the level of uncertainty today might not be greater than it used to be, but different. Marks talks about the availability of capital — the “huge mountains of cash” that corporations have, but are unwilling to spend it. This is a significant factor in the uncertainty that many small businesses face. But rather than point to problem of small  businesses being unable to access it because of tightening markets, he says that “…uncertainty really has nothing to do with why they’re not spending more. These guys are not spending this money because there’s nothing to spend it on.”

Really? Maybe this is part of the picture. But for many small businesses, they simply cannot access the capital that they used to be able to. Therein lies the uncertainty. If there were banks and lenders that used to provide loans, but now don’t, where do these entrepreneurs go? If you’re an entrepreneur with a good idea and some business sense, who do you turn to for help in flushing out your idea, coming up with a plan, getting financing, and gaining the skills you will need to be successful? Who is going to take a chance on you? After all, if things have always been uncertain, then it’s both the lenders and the entrepreneurs who have to make the leap of faith.

So yes, there has never been a fool-proof time to be an entrepreneur. Uncertainty is part of the game. However, today’s economy presents new challenges for many entrepreneurs, making today’s uncertainty different, if not greater, that yesterday’s. And navigating these new uncertainties can be a challenge in themselves.

June 28, 2012 at 5:13 pm 1 comment

Banks Get Graded on Small Business Lending

Ami Kassar, founder of MultiFunding, writes in the NY Times today about a new tool his company has come up with to grade banks on the level of small business lending that they do. Banking Grades allows users to search by county, zip code, address, or bank name to find out how the banks fare when looking at the ratio of their deposits to their small business loans (defined as a loan with a balance of $1 million or less).

Not surprisingly, there has been pushback from the banks about Banking Grade’s methodology and it’s assessment of the big banks. However, when you look at the numbers, it’s hard to argue that the banks are really doing all that they can. Kassar explains,

The four largest banks in the country — Bank of America plus Wells Fargo, JPMorgan Chase and Citibank — control 34.38 percent of all domestic deposits and make 13.8 percent of all small-business loans. If you take the top 50 banks in the country ranked by deposits, they control 67.16 percent of all deposits and make 36.9 percent of all small-business loans.

Meanwhile, the other 7,215 banks in the country control 32.84 percent of all domestic deposits and make 63.10 percent of all small-business loans. Any way you cut it, from my perspective, the big banks are not doing their share.

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June 27, 2012 at 2:08 pm 1 comment

An Uneven Economic Recovery: Who is left behind?

The Urban Institute has published a report looking at trends in unemployment, changes in the labor market, and demographic analysis showing the impact of these trends on different kinds of workers. The report includes a national analysis and shorter briefs looking at 25 metropolitan areas across the country, including Raleigh.

The takeaway? While employment will overall improve over the next five years, low-skilled workers, those with lower levels of education, and workers of color will face higher rates of unemployment and barriers to finding jobs. In addition, while the unemployment rate measures those who are actively seeking jobs, there is a significant number of people who have been unemployed so long they have basically given up. These people are referred to as “marginally attached,” which means that though they aren’t actively on a job search they’d take a job if one was offered to them. If you incorporate these marginally attached workers into the unemployment figure, it would go up from 8.3 percent (in Feb. 2012) to 9.8 percent.

In Raleigh, the unemployment rate is higher than the national average both overall and when looking at gender, race and age demographics. The charts below show the differences. What is most striking, though unfortunately not surprising, are the extremely high unemployment rates for non-Hispanic Blacks and youth (age 18-25) with less than a high school diploma– 33.4 percent and 27.6 percent respectively.

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Another important finding of the report is that the jobs projected to have the highest next increases nationally over the next five years are low-wage jobs. The highest net increase is projected to be in office and administrative support, which has a median wage in 2010 of $14.77 per hour. That’s below the overall median wage of $16.27 per hour.

These findings have significant implications for economic development policy moving forward. Where the state invests in education, work supports, and training will influence whether or not the most vulnerable and marginalized in our communities will have access to economic opportunity. Unfortunately, it appears that our state legislature has elected to cut spending in these areas, continuing the trend of disinvestment in our state’s most valuable resource: it’s people.

June 26, 2012 at 4:04 pm 2 comments

Interactive Chart on State Unemployment Rates

Here’s a great chart showing how states’ unemployment rates have fared, compared to the national average, between 1976 and 2012. You can isolate specific states, time periods, and view the underlying data. As you can see, North Carolina’s rate was below the national average until 2000, dipped again between 2005 and 2006, and has been on the climb since 2007. Click on the link provided in the caption to see the interactive chart.

From The Guardian:

How far would you travel to find work? Annual unemployment relative to the national average since 1976 for every US state

Joe Mako has used Tableau to plot unemployment relative to the national average for every US state between 1976 and 2012. The aptly named horizon chart represents values using both colour and dimensions. In this case orange and red shading indicate an unemployment rate above the national average, while shades of blue show the inverse. A coloured area’s height corresponds to the numerical value for that year, and where a shaded area reaches the top of its vertical scale an area in a darker tone is overlain showing the same again. Note the spike in Louisiana following Hurricane Katrina. Joe used Jorge Camoes’ data from excelcharts.com to make the visualization.

• Who made this visualisation? Joe Mako
• Where can I find it? Here
• More data journalism and data visualisations from the Guardian

June 25, 2012 at 3:24 pm

Farm Bill Passes Senate

The 2012 Farm Bill was passed by U.S. Senate yesterday and will be headed to the House of Representatives for debate starting after the July 4 holiday. The bill passed by the Senate cuts spending by $23.6 billion from current levels. It is expected to receive more scrutiny in the House, as conservative legislators are calling for even deeper cuts. Here is an overview of the key provisions and changes in the Farm Bill.

$4.5 billion cut to Supplemental Nutrition Assistance Program (“SNAP,” formerly known as food stamps)

SNAP is a huge part of the Farm Bill, accounting for 68% of funding in the 2008 Farm Bill. The bill passed by the Senate includes a cut of $4.5 billion, which the Congressional Budget Office estimates would be a loss in benefits totaling $90 per month. For a struggling family, that can be devastating. It is even more crucial that SNAP is supported now, as demand for food assistance has gone way up after the Great Recession– from 28 million to 46 million SNAP participants over the past 4 years. 

Elimination of Direct Payments, Expansion of Crop Insurance

Up until now, the federal government made direct payments to farm businesses growing commodity crops (the “big 5” include corn, soybean, rice, wheat, and cotton), whether they had a good or bad year.  From 2002-2010, the farm  bill allocated $39.4 billion to commodity crops—more than 8 times the amount given to specialty crops (vegetables, fruits, and nuts). This is way out of line when you look at the market value of commodity crops, which is only two times higher than that of the specialty crops.

The Senate eliminated direct payments, but expanded subsidies for crop insurance as the primary safety net for farmers, marking a big policy shift. However, the Senate also adopted an amendment that would place income limits on crop insurance subsidies. Subsidies would be reduced for farmers earning more than $750,000 in adjusted gross income. This would only affect 1,500 of the 1.5 million farmers in the U.S. and would save $1 billion over 10 years.

Rural Development

Prior to the Senate’s votes on amendments, the Senate bill did not include a rural development title for the first time since the mid-nineties. However, the Senate did vote to adopt an amendment that would provide $150 million for rural development. Although this is something, it represents a significant cut from previous spending levels. Since 1996, farm bills have averaged $413 million in rural development. And since 2003, annual appropriations for rural development has been cut by half (after adjusting for inflation). The Senate bill continues this decline in funding.

June 22, 2012 at 3:10 pm 1 comment

House Subcommittee Hearing on Small Business Lending Today

The House Small Business Committee Subcommittee on Investigations, Oversight, and Regulations is holding a hearing today called “Small Business Lending: Perspectives from the Private Sector.” The hearing is about regulatory burdens associated with small business lending. Robert Marquette, President/CEO of Members 1st Federal Credit Union, will testify on behalf of the National Association of Federal Credit Unions (NAFCU)about the  impact of the member business loan cap for credit unions.

The cap on the amount of small business lending that credit unions can do was enacted in 1998 and limits the amount of small business lending to the lesser of 1.75 times the net worth of a credit union, or 12.25 percent of the credit union’s total assets. This would apply to loans above $50,000.

This cap severely restricts the amount of lending that credit unions can offer. As we have blogged about before (here and here), increasing this cap would allow for credit unions to reach more borrowers that are currently not being served by mainstream banks and financial institutions. NAFCU even points to a study by the Small Business Administration’s Office of Advocacy, stating that “bank lending was largely unaffected by changes in the credit unions’ business lending, and that credit unions have the ability to offset declines in bank business lending during a recession.”

As long as credit unions and other community-based lenders are restricted in their business lending, there will be small businesses and entrepreneurs that will be unable to access the capital they need. As a source of jobs and wealth, small businesses need to have access to the resources they need to support our local, state, and national economies.

June 21, 2012 at 2:51 pm

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