Big Banks Shun Small Business

Any small business owner who recently tried to secure a loan will tell you it isn’t easy. Now data clearly shows the broader effects of this struggle.

The Wall Street Journal recently reported that the 10 biggest banks in the country that issue small loans to businesses lent $27.8 billion less in 2014 than the industry’s 2006 peak, according to the Journal’s analysis of federal regulatory filings. (1) This decline has forced many small business owners to turn to higher-cost funding sources.

The response is similar to that of individuals who are turned away by banks and then resort to expensive and risky alternatives. For businesses, these may be nonbank lenders, often in the form of online companies that require little or no collateral but that charge much higher interest rates than banks. While not all of these lenders are predatory, the space is still largely unregulated. For small amounts, some business owners are turning to nonprofit microlenders or crowdfunding to try to fill gaps, though both have serious limitations.

But many businesses are simply turning to credit cards when they cannot secure traditional small business loans. According to the Journal, small business spending on credit and charge cards will total an estimated $445 billion in 2015, compared to $230 billion back in 2006, when conventional lending was readily available. (1)

It may be more profitable for banks, but this solution is bad, and probably unsustainable, for business owners. As Robb Hilson, a small business executive with Bank of America, told The Wall Street Journal, “If someone wants to buy a forklift, it doesn’t make sense to put it on a credit card.” (1) Yet many small businesses have little other choice for now.

This result is not surprising. Large banks generally find small loans unattractive, partly because of their relatively high costs and partly because of tighter regulatory requirements. A Goldman Sachs analysis earlier this year cited the reduced availability of credit as one of the principal reasons small businesses have faltered in the wake of the financial crisis while large enterprises have largely recovered. (2) As regulators cracked down, it became uneconomical for banks to serve clients other than the most creditworthy. Startups seldom make the cut.

My own experience mirrors others. Even with a 23-year-old business that operates across the country, banks want hard collateral before they will make substantial loans. And when the chief assets of a business consist of loyal customers and really smart employees, the only available collateral is personal real estate. And even real estate was not enough at the first bank I approached; geography came into play too. If banks find our established firm too risky to make unsecured loans, many smaller or newer enterprises do not stand a chance.

With big banks out of reach, small community banks should have been ready to step into the gap, eagerly courting new customers. But that has not happened, largely because the number of such banks continues to decline. This trend predates the Dodd-Frank financial regulations, but the regulations sharply accelerated the community banks’ loss of market share.

This is not to say that all community banks are in immediate danger of going under. To the contrary, recent data from the Federal Deposit Insurance Corp. suggests that those that have held on have expanded their lending and narrowed the profitability gap with larger banks.

While this is good news, it’s not enough to fill the gap in small business lending. And it seems unlikely to do so soon, since new bank establishments have dropped nearly to zero, thus cutting off a supply of lenders who are eager for new customers. According to an FDIC report from April 2014, there were only seven new bank charters total from 2009 to 2013, compared with over 100 annually prior to 2008.

The small banks that have survived have largely done so by being just as risk-averse as the big banks with which they compete. Regulation has simply made it foolish to act otherwise. But this leaves all small businesses except those with established history, sterling credit and substantial collateral without the means to secure the capital they need to make their enterprises grow.

Small businesses are crucial drivers of new jobs and new products for our economy; their credit struggles are probably a significant reason this economic expansion has been sluggish by historical standards. We have made it unattractive for big banks to serve small businesses, and small banks are not ready to fill the gap. We all pay the price.

Sources:

1) The Wall Street Journal, “Big Banks Cut Back on Loans to Small Business”

2) Goldman Sachs, “The Two-Speed Economy”

2 Realities Business Owners Must Embrace – Making Decisions & Accepting Mistakes

The list of realities for entrepreneurs is long. It’s definitely longer than just two. Entrepreneurs face and embrace a multitude of realities every day. There are countless books, and a seemingly endless supply of articles on this question: what does it take to be a successful entrepreneur? I agree with just about all of the content I have read on this topic over the years. The two realities of small business ownership I highlight in this article are not unique – they have been written about and discussed many times by others – but I think they are worthy of special consideration and focus.

In my experience, making decisions and accepting mistakes are critical to successful business ownership and the two are tightly interrelated. If you accept responsibility and accountability for decision making, and understand that a business owner has to make lots of decisions, then you must also accept that not all of your decisions will be correct. You must, however, have the desire and courage to make those decisions. To be a successful small business owner, you also must try to learn from your mistakes and keep charging forward.

Embracing Decision Making

Do you enjoy being the one person people come to for a decision? Do you embrace being in charge? Do you welcome having to make the hard choices? If you answered “no” to any of these questions, I don’t necessarily believe it means you are not cut out for entrepreneurship. Perhaps it just means you are being honest with yourself, which is great. The reality is, however, that you either already embrace being the decision maker or you need to learn quickly how to do so.

In the corporate world, there are often executives above us who have to make the tough decisions. Or perhaps the decisions are made as a group and they gather consensus. The board of directors may be responsible for the overall decisions that guide a large company, leading to success or ruin. In the world of small business ownership, conversely, the decisions must be made by the owner. If you are fortunate, you may have partners or mentors whom you rely upon to help you make the tough calls, but most often it’s the lone entrepreneur who bears this responsibility for their business.

To succeed as your own boss, I believe you have to want to be the person who makes the difficult decisions. It’s not that you don’t feel pressure and stress related to decision making, but instead it’s more about your confidence in your ability to do so. Furthermore, it’s probably one of the things you wanted and that drove you to become an entrepreneur in the first place. The freedom to choose your own path… to run your company the way you see fit.

Accepting Mistakes

All successful entrepreneurs will tell you that making mistakes, and learning from them, is an essential part of the process. As Henry Ford explained succinctly, “One who fears failure limits his activities. Failure is only the opportunity to more intelligently begin again.”

I believe you have to plan to succeed, but prepare to fail. That may sound self-defeating, but I accept it as the reality of being an entrepreneur. I can live with the probability that some of my ideas and decisions will be wrong, but I am confident that my experience and knowledge will lead me to more good ones than bad. Most days, I have confidence in my decision making abilities and I trust that my instincts will guide me in the right direction. On the bad days – the days when I fail – I try to learn from my mistakes and look forward to the next day when I can start anew.

Small business owners must accept that mistakes are part of the process. If you are making enough decisions, then the odds are that some of them will be blunders. Nobody is capable of avoiding mistakes if they are truly taking risks and pushing beyond the status quo. If you try too hard to avoid mistakes, then you will likely over-analyze every move and become paralyzed. You can’t be afraid of making mistakes. You must accept this, and have confidence in yourself that most of your decisions will be right.

Others will probably be quick to point out when you stumble. I suspect those people are probably not small business owners! It’s certainly much easier to make no decisions and remain on the sidelines; all the while critiquing those who do make decisions, of course. It’s much harder, and braver, to apply your intellect, experiences and skills to predict the future – which is partly what our businesses require from us.

This absolutely does not mean that we enjoy failure. I hate to fail! But when I do, I try to get past the grieving and self-pity phases as fast as possible and learn from it. I understand that I am not perfect, I don’t own a crystal ball that works consistently, and I have learned that with making lots of important decisions come some poor results. The famous football coach Vince Lombardi summed it up nicely when he said, “If you’re not making mistakes, you’re not trying hard enough.”

Embracing and enjoying decision making, and accepting mistakes, is essential to a fruitful entrepreneurial life. When you make decisions – particularly the hard ones that help determine the future of your business – you are going to make some bad ones along the way. Sometimes, you make a lot of bad ones in a row! The successful entrepreneur understands that this is part of the process, and keeps moving forward. You must have confidence in yourself, and believe that you are capable of overcoming mistakes and making choices that keep you on the path to greatness.

Virtual Business Phone Number – Who’s Calling?

For any business, every customer call is important. Yet little attention is paid to maintaining a high quality incoming call management system resulting in considerable damage to brand reputation and incalculable business opportunity losses. Worse, the management has no control or information about:

No. of calls received

No. of calls missed

Who handled the call

What was spoken during the call

By greeting, routing and tracking all incoming calls received by the business, the Cloud Based Business Telephony Solution provides a simple, cost effective and yet highly efficient way of handling business inquiries.

CLOUD BASED BUSINESS HELPLINE SOLUTION FEATURES

  • Customers can choose a 10 digit mobile or toll-free number for the business
  • Advertise the same in all business communications and stationary
  • Employees can be grouped into departments and assigned extension numbers and calls routed to the department could be delivered to employees within that department automatically, wherever they may be, on their mobile phones. When lines are busy callers are automatically re-routed to other available numbers.
  • Automatically managing incoming business calls,
    • Every caller is greeted professionally, tirelessly, 24×7
    • Not a single call is missed.

All caller details are captured in real time 24×7 and business owners and managers can review the same in real time

Who should buy it

Designed to serve the requirements of those modern day technology enabled businesses,

  • Lot of incoming calls, everyday of the week
  • A mobile workforce that needs to stay connect with the office at all times
  • Where customers require extensive pre sale counseling or support by qualified employees

Where customer regularly place repeat order on phone. These solutions are already deployed across many market verticals including Educational Institution, Online Matrimony, Retail, IT, Real Estate, FMCG sectors.

Advertising campaigns are becoming increasingly expensive and brand managers are asked to monitor campaign performance continually to derive highest value for money spent. In a multi-platform, multi-location campaign it is virtually impossible for brand managers to understand in real time:

  • Which campaign message or outlet is performing the best?
  • What is the volume of inquires generated and which time of the day?
  • Who handled the incoming inquiries and what transpired during this conversation?

Till now real time campaign ROI measurement was partially possible only in an online campaign. By tracking all incoming calls generated by the campaign, cloud telephony based Campaign Response Management Solution provides a simple and yet highly effective real time solution to businesses.

These solutions will help you to manage your business, away from office also. It provides the most economic way to own a telephony solution for an entire company which earlier a big companies used to dream of.