There’s a severe postcrisis disconnect in the money movement system, and we’re all suffering for it.
Two factors are at work: first, the tightening of bank credit as a result of both regulatory and corporate policy, and, second, the inevitable resurgence of small businesses in the wake of a recession.
Entrepreneurs have always had difficulty borrowing from banks, but never so much as now. And without financing for inventory, equipment and other operational costs there can be no viable market economy.
It’s a fact of life that financial institutions aren’t lending the way they once were, and it’s counterproductive to complain about it and form action groups to shame or force them to do so. It’s not going to happen. The system need to forget about badgering banks, and move money into the hands of business borrowers. We’ll give banks a mulligan for not making the loans that they’re not permitted to make, but we have to play through and get capital to commerce. There’s a lot of cash out there waiting to go to work.
If banks are given a break for not lending, they shouldn’t be given one for the way they handle their basic business: making a profit on the movement of money. To understand where they’re failing, visualize this:
A factory makes that iconic staple product of American business: widgets. The little devices come off the assembly line, and, say, 10 percent aren’t up to the high standards of widgetry. So, National Widget Corp. doesn’t junk those slightly flawed units, but sells them as seconds to wholesalers who in turn place them with deep discount retail outlets where lower income shoppers can afford to buy that essential household item. Everybody benefits.
What do banks do with their rejects? They don’t know; the reject walks out of the door, probably never to be seen again. When turned down, a prospective bank borrower gets little other than politeness. No referral to the non-bank lenders that are waiting with cash for business loans.
Bankers, like politicians, are extremely adept at close-up marksmanship. They’ll hit the foot every time. There seems to be a pervasive fear that, if referred to a private lender with high rates and fees, that business customer will be so bitter that the bank’s name will be anathema to the business and its owner.
Which, of course, is nonsense. If that customer is successful, the business profits and cash flow has to be deposited somewhere, which will be most likely where the business got some help when it was needed, and it won’t be the private lender that benefits from that transaction.
A few, very few, banks do refer borrowers to other sources, but be assured, there’s no protocol for it. No matrix that the credit officer can use to assist a borrower in finding the different kinds of financing, such as inventory loans, lines of credit, factoring, purchase order financing and so on.
When I first started in the banking business an old teller told me that, when you open an account, do all the paper work before you ask the amount of the deposit. Then, she assured me, you’ll treat each customer like a very important person.
Bankers need to remember that the Bill Gateses and Steve Jobses of the world have long memories. Today’s reject could be tomorrow’s biggest depositor, and you could, almost literally, be working for him or her.
Pat Dalrymple is a western Colorado native and has spent almost 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is firstname.lastname@example.org.