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A Second Look for Small Business Loan Applicants


One of the notions to come out of President Obama’s meeting with bank execs Monday was that lenders would take a “second look” at rejected loan applications. From the AP:

President Barack Obama challenged top bankers Monday to explore “every responsible way” to increase lending, saying they were obliged to help after being rescued by taxpayers. He asked them to “take a third and fourth look” at their small-business lending.

US Bancorp CEO Richard Davis told the group meeting at the White House that his bank would be willing to take a second look at every loan it rejects. And he said he would present the idea to other members of the Financial Services Roundtable — a group representing the largest financial companies, according to the Roundtable. Davis is its incoming chairman.

I called US Bank to find out how such a “second look” process will work. It turns out that the lender has long been doing an automatic “second look” on rejected loans, according to bank spokesman Steve Dale. “If for some reason they don’t meet our criteria, for years now we’ve been running them back through,” he says. The bank looks for some way to adjust the deal — by lowering the amount or changing conditions, for example, to make it fit the criteria, Dale says.

It’s not entirely clear what US Bank will be doing differently since CEO Davis’s statement at the White House. Dale says the bank will look for ways to make potential borrowers qualify with SBA loan guarantees or other credit enhancements. “We’re going to try harder to say yes and we’re going to look for more ways to say yes,” he says.

US Bank gets about 40,000 applications for small business credit each month (including equipment leasing, credit cards, etc.). For basic commercial loans, the bank’s approval rate is between 40% and 50%, Dale says. The number of applicants has dropped by 20% since last year. US Bank’s own commercial loan portfolio (not synonymous with small business lending) has declined from nearly $90 billion a year ago to $85 billion now, according to Bloomberg data.

Davis, the incoming chairman of the banker’s trade group Financial Services Roundtable, said he would promote the “second look” approach to other executives there. Other financial execs pledged to boost lending after meeting with Obama, including Bank of America, which said it will increase small business lending by $5 billion next year. The bank has originated about $12 billion, including credit card lending, to small businesses in the first three quarters of 2009.

Whether because of slackening demand, higher credit standards, or both, lending to small businesses is still dropping. The 22 biggest TARP recipients have decreased total lending to small business by $11.6 billion since April, when the Treasury began collecting information on small business lending. US Bank, which repaid the $6.6 billion in TARP funds it received, has expanded its small business portfolio in that period.


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