The Small Business Credit Squeeze

Transcription

1 The Small Business Credit Squeeze Presentation by NC Commissioner for Small Business, Scott Daugherty & Benjamin Geyerhahn Small Business Majority August 25, 2011

2 Mr. Scott Daugherty was appointed by Governor Beverly Perdue to serve as North Carolina s first Commissioner for Small Business. Mr. Daugherty also serves as the Assistant Vice Chancellor for Extension, Engagement and Economic Development at North Carolina State University and directs the North Carolina Small Business and Technology Development Center Additionally, he has served as a consultant to the OECD, the World Bank, the Ford Foundation and the U.S. Small Business Administration.

3 The Big Squeeze Higher reserve requirements mean less money to lend for banks. Banks would rather lend to larger companies because the effort is the same, and a perception that small business lending is more risky. Traditional collateral assets have been degraded (real estate and receivables). FDIC used to approve 300 new bank charters annually replacing the churn of failing banks. FDIC has approved only three new national bank charters in the last two years.

4 Who cares and why? Business and policy makers Banks are doing what s right for them, but that s hurting small business and the economy In many recessions, small businesses produce all of the jobs that lift the economy to recovery

5 How do I get credit? SBA Loans 7(a) 7(m) Small banks and credit unions Factoring Know your credit score Develop a strong business plan

6 What should I do? Talk to your Bank o Ask your bank if they have someone who has worked with clients to get loans from the Small Business Administration (specifically the 7(a) or 7(m) loan programs), and ask to be directed to that person. o If your bank has refused you credit, tell them you will leave for a lender that offers credit.

7 Who offers small business credit? Smaller banks and community banks with a more local or regional footprint are the place most small businesses access credit. Banks with dedicated SBA specialists. Wells Fargo has a strong reputation for working with small business. BB&T is the most active SBA lender in North Carolina

8 SBA Loans 7(a) - Lending Program o Loan guarantee program o Financing up to $750,00 from qualified lenders o Working capital, asset purchases and leasehold purchases o Personal guarantees required from owners with 20% stake or more o 10-year term o Available only to people with no other resources

9 SBA Loans (cont d) 7(m) - Microloan Program o Loans funded entirely by SBA o The program not fully funded o Maximum loan: $35,000 o Funds are unrestricted and available to startups o Typically loans come with required enrollment in technical assistance classes

10 The purpose of the Business and Industry (B&I) Guaranteed Loan Program is to improve, develop, or finance business, industry, and improve the economic climate in rural communities. Loans eligible for a guarantee can range in size up to $25 million. The program will assist with business conversion, enlargement, repair, modernization, and development. A few examples that meet this criteria would be the purchase and development of land, rights-of-way, buildings or facilities.

11 Biz Boost is a unique and proactive approach to workforce development that works to retain existing jobs and supplement the traditional strategy of work training. Through one the state s 18 regional offices, the Small Business and Technology Development Center looks to provide small and medium-sized business with counseling in order to maintain a growth-driven workplace. These same firms annually account for at least 65% of the net new jobs in North Carolina over the last decade.

12 NC-CAP is expected to enable up to $800 million in business lending over two years. The program will support loan loss reserves that allow banks and other qualified financial institutions to make business loans that otherwise fall just outside of their normal underwriting standards. The maximum loan amount is $5 million. Most businesses located in the state with 500 or fewer employees are eligible for support under this program.

13 The Capital Access Network (CAN) is a state-wide initiatives of Governor Beverly Perdue that has been designed to help qualified small and medium businesses secure the proper funding to grow. CAN facilitates the process of accessing government loan guarantee programs for both businesses and participating banks. CAN is specifically designed for North Carolina s businesses with at least three years of financial records and no recent bankruptcies. Call for a referral into this program

14 Small Business Lending Fund Treasury Department initiative to deploy $30 billion in small bank investment to free capital for lending (part of 2010 Jobs and Credit Act) Limited to small lenders Watch for press releases in your state

15 Factoring What is factoring? o Using your sales receipts as collateral for a loan, which the lender collects. This takes the focus of the loan off your business and puts it on your customer.

16 What is Small Business Majority working on? Working with alternative lenders to find new sources of capital. Working with state and federal agencies to ensure smooth capital deployment. SBA Treasury Department Main Street Partnership Banks Legislation

17 Partnership Banks Legislation State tax dollars are usually held by Wall Street banks, a partnership bank is established by the state and keeps those dollars in the state to be used to develop local business. The partnership bank acts like a banker s bank, meaning no direct-to-consumer loans. It purchases loans exclusively from local banks to provide them liquidity. Result: More and stronger local banks Stronger small business lending

18 How does a state bank work? Main Street Partnership Bank Bank of Small Town Friends Bank Local Bank

19 Bank of North Dakota More small local banks making more smart loans to more small businesses Thriving small business community Lowest unemployment in the country: 3.2%

20 North Dakota and Vermont Vermont N. Dakota Population 622, ,000 General Fund budgets (2009) $1.1 b. $1.56 b. Unemployment (%, 2010) Budget deficit ($24 m.) $400 m. Banks (2009) Deposits held by out-of-state banks (%, 2009) Total state loan portfolio (2009) $3,100 m. $2,619 m. Commercial/Econ. Development lending (2009) $102 m. $1,333 m. Net state banking revenue (2009) ($21 m.) $30 m.

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