A new hope for small businesses

After the financial crisis has broken in the United States in 2008, the larger banks have held the majority of the shares over small business loan markets. According to the Small Business Administration’s data, the market shares they held is slightly over 39 percent in  2005 and rose up to 39 percent in 2009. But these past two years have not been as good for these large banks as their shares fell to 38 percent last year.

Though it is currently still too early to tell whether the drop was due to the problem in the sales of the big banks, or if the financial state of the economy is going back to the way it used to be; but it is very good news for the owners of small businesses.  With the big banks losing their grip on the sales of the industry; this means that they no longer dictate who gets a loan and who does not.

It is no secret that your bank credit is your ticket to expanding your business. Almost one-third of businessmen come to banks for loan in hopes of making their business grow, this is according to the new Census data. Though businesses seem to have increased independence on credit cards, the bank loans are still much larger compared to credit card loans.

The value of loans in smaller banks has decreased by 19 percent between 2008 and 2011, and they greatly need to re-evaluate their market shares. But it is still easier for consumers to borrow from these banks compared to large banks because they do not focus on credit scores of applicants and the businesses’ financial statements and they can be open-minded to small businesses compared to big banks.

These financial institutions according to the 2004 Journal of Financial and Quantitative Analysis study are more reliant on the character and relationships of the applicants and business owners. Though big banks may have more perks when they loan money, but business owners would turn to small banks because more often than not, they would give the amount of money the business needs.

You Can Take on Your Own Credit

People always expect to be charged with a huge amount of money when they ask for other people’s help so that their credit will be recovered. But the question is, are the big sums of money rangingfrom $800, $900 to $1,000 really a fair deal?

According to the Better Business Bureau’s president and CEO, Melanie A. Duquesnel clients can fix their credit on their without spending thousands of dollars.

Those who are struggling with their credit have to be smart and vigilant about these schemes. They often just end up doing more harm than good for your credit status.

Credit repair companies have been receiving various complaints in the St. Louise Better Business Bureau from unhappy clients claiming to have paid $816 in average. Many Americans are falling in their trap because they are desperate to recover from debt.

However, according to experts paying debts on time doesn’t necessarily mean your FICO score will improve. The scenario is, borrowers do not have the money to pay so the lender gives them the cash and agree to receive less amount of money for it until it is fully paid.

Credit repair agencies give the impression that it is easy to recover from bad credit. The St. Louise Better Business Bureau found out that clients do not only have problems with the lack of results in their credit scores, they are also nerved by the debt-settlement offers given by these companies.

Advertisements often make people believe in any claims that may just be untrue. Companies try to make their ads as enticing and manipulative to get customers to pay them for their services.

Furthermore, some customers’ lack of information and understanding on how the credit works makes them even more vulnerable to these manipulative attacks of companies.

So the best thing to do for clients is to get all the knowledge they can about the industry. Go to online to annualcreditreport.com and monitor your credit report, check for errors that might have occurred in the statement.

More Bad News for JPMorgan

JPMorgan Chase is in for more bad news as their credit continues to decrease these past few days. Fitch Ratings gave a lower rating of A+ to the financial agency after they lost $2 billion worth of dollars earlier last week.

According to Jamie Dimon the Chief Executive of JPMorgan, the company’s situation could get worse because they are not liquid enough and ratings companies are asking questions about their company’s risk management status, framework and practice.

The ratings industry head, says that JPMorgan Chase’s reputational and risk governance issues are not as good as they used to be however the current amount that the company is losing can be managed. According to reports JPMorgan’s, last week’s market shares was at $36.96, it went down by 9.3%, then after just a few hours it plunged further down to 0.8%  that’s $36.67.

The bank continues to be criticized and ridiculed by politicians and lawmakers as the ratio continues to drop. Thus a more convenient way for the firm is to have tighter measures and adapt to something like the Volcker Rule which can take care of too much risk-taking done by large banks.

The bank’s Executive Chief Mr.Dimon who has been getting positive regards about his efforts to get the bank back in tact has been open about his thoughts in implementing laws and regulations especially the Volcker Rule.

This however stirs questions from external sources whether the company has tried to implement the regulation in the past. However the total loss of $2 billion that was reported last week has weakened the arguments of the bank for their new measures. Bank investors are currently having difficulties in getting access to financial institutions and international trade and businesses.  Though JPMorgan Chase like the Bank of America and Citigroup have reports that can still be further evaluated, their unseen transactions and unclear records for their strategies could be destructive for them.

Loan Approvals Decline, Indicate Economy Slowing Down

According to Biz2Credit Small Business Lending Index, after evaluating 1,000 applications for loans, it was discovered that loan approvals at banks declined from 10.9 percent during the month of March to 10.6 percent during April, and also a decline from an approval rate of 11.6 percent during March 2011. Moreover, small bank lending declined from 47.6 percent during March to 45.9 percent during April.

On the other hand, loan approvals by credit unions also declined to 46.6 percent when they were proposing to raise the lending limit to 27.5 percent of their assets.

One other indication that the economy is slowing down is that, in general, the demand for small business loans for the month of April declined by 5.4 percent, which is a first for 2012.

The guarantee fee of 90 percent for loan approvals established between the months of September 2010 and March 2011 were applicable for one whole year. The month of April of this year was the first month of 75 percent guarantees along with evaluation of the 1 to 3 percent fee. This is one of the major causes for the decline in the loan demand and less enthusiasm of banks to approve funding applications.

The April jobs report showed that only 115,000 jobs were produced, even though the anticipated number is more than that. This can also mean a slowing economy. Moreover, increasing oil prices, together with the worsening of the crisis in Europe, have contributed to borrowers and lenders being much more careful.

Credit unions and alternative lenders, among all small business lenders, have approved above 50 percent of loan applications. Since the month of September last year, small bank lending declined to its lowest point. In contrast, big banks do not approve nearly 9 in 10 small business loan applications.

According to the evaluation by Biz2Credit, loan application amounts vary from $25,000 to $3 million and that the average credit score was more than 680.

Congress Insisted to Increase Business Lending Cap

Assuring that small-business lending would grow, credit unions insist that the Congress increase their business lending cap. However, there are some who believe that the facts are altered.

Sen. Mark Udall proposed the Small Business Lending Enhancement Act (S. 2231). It would transfer loans at community banks to credit unions, which do not actually pay taxes. For years now, community banks in cities all over America pay their taxes and have been assisting small businesses by means of loans.

The truth is that credit unions have sufficient small-business lending authority. The proposed Small Business Lending Enhancement Act would basically let credit unions which do not pay taxes to make big commercial loans. As a result, it would benefit them in terms of safety and soundness.

However, credit unions are also aware of the disadvantages that will come with the proposal. Some of those who disagree with the proposal include credit union executives from places such as Michigan, Washington state and California. Moreover, they are saying that it might result to reckless lending and rising credit union failures.

Stuart Perlitsh, the chief executive of Glendale Area Schools Federal Credit Union wrote a letter addressed to the Senate leaders last April 11. According to the letter, most of the credit unions will not profit if the business lending cap is increased, and instead, they will pay more expensive premiums caused by the credit union failures.

One other truth is that allowing the shift of business loans from taxpaying community banks to non-taxpaying credit unions will place the Treasury in more debt. In the previous Congress, a parallel bill would have cost taxpayers lost revenue of nearly $354 million after a decade. Apparently, this proposal would cost greater than that.

If credit unions want to develop their business lending, then they have another option, which is to switch into a mutual saving bank charter. In fact, a few have already done this because of its flexibility.