A Call for Bankers with "Guts to Do What's Right for Business Owners"

Posted by: John Tozzi on June 26, 2009

I want to highlight a great comment that a reader, a former commercial banker named Sheila Spangler, left today on our story about rising business bankruptcies:

As a former commercial lender, I’m appalled that bankers are forcing small businesses into bankruptcy rather than doing a workout. Banks’ balance sheets are “fragile” because [they] reduced credit standards to follow the crowd. The unwillingness to work out of problem situations is especially true of the large banks. The locally owned independent bankers are much more likely to work out payment arrangements with business owners. Probably because the decision-makers live in the community in which they serve. It’s more difficult to be hard-hearted when your neighbor, club member or friend is requesting that you help him save his business. I am working with some business owners in this regard. In my prior life as a commercial banker, every one of the banks I worked for referred to themselves as a “relationship bank”. Well, it is apparent that the “relationship” only works one way. That’s NOT a relationship that anyone can be in successfully. Come on bankers, small business owners need you now more than ever. Don’t follow the crowd like you’ve always done. We need bankers with the mental toughness and guts to take a stand and do what’s right for business owners.

Banks — especially the ones that took TARP funds — have been in a bind since last fall. They’re under pressure on one hand to increase the flow of credit to households and businesses, and on the other hand to reduce the risk on their books. It’s easy to understand why banks would push to recover whatever they can immediately from small companies facing insolvency, considering the cost and time involved in doing workouts with companies that may not be viable in the long term. As Sheila points not, it’s not relationship lending, it’s simply looking at the numbers. The irony is that the companies filing bankruptcy right now are small enough to fail — while many of their creditors, who have no patience for workouts, are only around because the government rescued them.

Reader Comments

Sue Erb

June 29, 2009 12:13 PM

I am a fairly new small business and have had to run my business without any loans. I can't find a bank that will put their money where their mouth is and help out a small business that IS going to make it through this recession. Why, because I'm considered a risk already. I believe if the government would help out the small business like mine, we could pay our bills which in turn goes back to the car companies, government, bank loans, etc. But no, it's given to directly to the car companies, banks, etc and they are not helping the small businesses.

Yes - I HAVE A LOT TO SAY!

William Babbitt

June 29, 2009 01:00 PM

Many businesses like banks, extend credit. If a business extends credit to their customers, just like a bank, those businesses can see why some banks are cautious. The Government has done such a horrible job, that what would have been a natural down cycle is now slowed by lack of confidence and distrust. Communications is the key, banks, customers, their customers, must all work together, without the Government interference and confusion. We can be a community once again, just as the article says. Credit, when and if you are fortunate and actually NEED a loan, be very careful, and use it when needed only, do not run to the first office supply house the day you obtain a bank loan. Try to run your business without borrowing, use your vendors, treat your vendors like a bank, they are your best bankers. If all businesses large and small, would use common sense, get the Government out of the picture, keep private business private, keep the communications going, we can succeed. We all need products and services, that will not go away, there is always a need. But we have to gather to together, keep our businesses within our circles of business, trade and be fair, with customers and vendors, banks have to understand some businesses borrow now, that did not before, but will repay, it is how banks make their living, if they do not loan, how will they survive? A bank's customer is the same as a business vendor, they are counted on for 30 day terms, and prompt repayment, when something comes up, communicate what the issues are, work out a plan, and the hard working smart banks and businesses will get through this despite the Government which knows NOTHING about business, look at their balance sheets. It is time to be calm, to understand, to help, to be a community, we are not that far different.

NickP

June 29, 2009 01:15 PM

While I agree that the banks need to put their money where their mouth is I do not agree that the Government should help. Obama has proven himself to be THE enemy of small business. He allows small banks to subsidize the big banks who screwed up and treated their customers like trash (BoA being the worst). He allows retail business to be forced to subsidize the likes of walmart with their tax dollars. He has put the small car dealers out of business. His tax and healthcare (welfare) plans are designed to kill small business. I have severed all relations with big banks and have cancelled all expansion plans to prepare for Obama's next rip off. We owe no banks and do not intend to. What is the point of working hard so he can take it and give it to the "gimmie-gimmie" crowd.

JeffC

June 29, 2009 01:25 PM

The government does not really care about us, small business. This government in particular to be specific...

GeorgeB

June 29, 2009 02:01 PM

As an entrepreneur, it quickly becomes clear that bankers are not in the risky venture business. They will often loan you little more than what you have on deposit (with them) - or that they can quickly liquidate if you stumble.

As a taxpaying business person, it becomes even more painfully clear that:
- when your resources are taken from you to give to those lenders who control your access to capital (so they can reduce their risk and the imbalance on their books), and
- they are then allowed to subsidize/support your competition who can unfairly compete with you, that
- "they" may NOT be "here to help you".

(REF: also check out the terms "Loan-Shark" and "hush money" and "Chicago politics..")

Perhaps it is not the change some thought they voted for - and the financial remedy may be now to finally
"Clean house - and the Senate too!"

Sherry Alberty

June 29, 2009 02:39 PM

My very first credit card, after college, was my Sears Card. That was in 1983. Since then, I have married, bought a house, had four children and own a business. I am still married (23yrs), still own the same house (21yrs) and all four children have graduated from high school, are attending college and the oldest has graduated from college. As for our small, family owned business started in 1993, we are still here, working. We are working very hard actually. Since August of 2007, small businesses have dealt with everything banks like you have hit us with. We don’t qualify for anything because we are self employed. We received no congratulations for our achievements. Instead, we take the blunt end of this financial disaster with our personal credit profile. Banks have taken advantage of the system by raising the interest fees and late payment fees and insufficient fund fees to the point of bankruptcy for most small family owned businesses. The federal government has sided with you and chose to over tax us. We pay extra in self employment taxes and business taxes and penalties. You both are destroying our credit ratings, not us. We are still here. After all the banks close, we will still be here. We have outlasted four different banks since 1993. We have not filed for bankruptcy or foreclosed. See, we care about our business. We pay our bills, as hard as it is to do, we still pay our debts. And whether you shut us down with your right to close accounts due to a simplified, impersonal credit rating, we will still purchase materials and we will still go to work and we will stay in business, because we have to. We have more dignity and respect for the small business owner than any big business and we can afford to stay in business by taking care of each other. We don’t need your big business. Good Luck to you. I know I won’t be shopping at Sears or Kmart anymore.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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