Chase Offers Small Business Borrowers Incentives to Hire

Posted by: John Tozzi on June 30, 2010

This is new: A bank offering companies incentives to hire. Today JP Morgan Chase announced that small businesses that open new business lines of credit can reduce their interest rates by .5 percent for each new hire by the end of the year, up to a 1.5 percent discount on credit lines of up to $250,000. Customers with existing credit lines can get the discounted rates for hiring if they increase their lines by $10,000. Customers that open a business checking account can get another .5 percent discount. CEO Jamie Dimon unveiled the plan at the bank’s headquarters in New York last night.

Behind the move — besides favorable PR — is competition among banks to grab the best business customers from a diminished pool of creditworthy borrowers, says Sam Thacker of Business Finance Solutions, a former banker who now consults with small businesses. “The banks are fighting for the best businesses out there,” Thacker told me. “Revenues of many companies are down. So is loan demand. … [Chase is] trying to entice more non-Chase customers that are strong customers of other banks.” The move may also attract more business depositors to Chase.

Right now a typical interest rate on a business line of credit is 6 percent, says Chase spokesman Michael Fusco. Businesses that maximize Chase’s discount offer with three new hires and open a new business checking account can knock that down to 4 percent. Chase still makes money off the spread (the prime rate, which banks offer their best borrowers, is 3.25 percent), and the discount only applies to relatively small credit lines (up to $250,000).

Small businesses that were already planning to hire, looking for new credit, and strong enough to qualify for a credit line can benefit from the lower rates. But Thacker says the deal is unlikely to make or break any hiring decisions. Chase estimates that business owners could save $4,000 in interest over three years on average balance of $65,000 — that’s nothing compared to the risk of hiring someone before demand increases enough to justify it, says Thacker.

Major banks want to appear friendly to small businesses as Washington pressures them to expand lending. (Assistant Treasury Secretary Alan Kreuger was blunt in a speech to the Charlotte Chamber of Commerce yesterday: “We would like to see [bank lending] standards loosened so more credit flows to credit-worthy borrowers,” he said in prepared remarks.) In a similar move, Bank of America recently announced plans to buy more supplies and services from small and mid-sized businesses. Several banks have pledged to increase lending. They’re all trying to rehabilitate public perceptions damaged in the financial crisis and subsequent bailout.

Chase’s Fusco says the bank has $16.8 billion in outstanding loans and lines of credit to businesses with under $10 million in annual sales. Chase had 2.3 million outstanding loans or credit lines under in amounts under $1 million (a proxy for lending to small businesses) in the first quarter, according to reports filed with regulators. The bank does not break out how many are loans vs. credit lines.

Reader Comments

Eric Eagan

July 13, 2010 10:14 AM

Here’s some interesting news that might interest small businesses caught in the credit crunch: A state law was just passed that will foster the growth of electronic receivables trading. Small businesses use these platforms, such as The Receivables Exchange, to sell invoices to institutional investors in real time and access growth capital almost immediately. This law is the latest sign that receivables financing for small and midsize businesses is going mainstream. Check it out: http://www.receivablesxchange.com/news/press_releases/2010/Small-Business-Financing-Innovation-Louisiana-07-13-2010.html

G

July 30, 2010 1:49 PM

I looked into their small business lending products. After some arm twisting, they finally admitted that although it is a business loan, they take your social security number and report the business loan balances on your personal credit report. This can be deleterious to your FICO score.

David

August 17, 2010 7:54 AM

Funny about Chase offering incentive to hire people, didn't they ship several jobs over seas just recently. Maybe they should take their own advice.

Philip Lewis

January 1, 2011 7:50 AM

This "plan" will accomplish zero, in reality. Banks are too lazy to perform meaningful credit analysis. The big banks have become so automated that they're incapable of making loans without treating the application like a credit card application. This is a recipe for credit disaster and high losses. It all comes down to greed and stupidity.

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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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