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JPMorgan Chase has been trumpeting increases in lending to small businesses in full-page print ads. One running today in The New York Times describes the bank’s new policy to give a “second look” to rejected business loan applicants who request another review:
This means our credit team gives a second look—and makes every reasonable effort—to approve those businesses that are only experiencing short-term stress due to the unprecedented economic downturn.
This extra step has already provided an additional $50 million in credit to 200 small business applicants who had been previously declined.
How many loan applicants requested a second-look? I asked Chase spokesman Tom Kelly this morning, but he told me the bank isn’t sharing that information. So it’s hard to evaluate how significant those 200 second-look approvals are.
Kelly did offer this much: Chase’s business banking segment originated $700 million in new small business lending in the fourth quarter of 2009. (That does not include credit card lending, Kelly says.) The second-look policy, which began in mid-November, resulted in $50 million in originations since then (a period slightly longer than a quarter). So it’s not a negligible amount.
But more transparency would help here. The bank has said it plans to increase small business lending to $10 billion in 2010 from $6 billion in 2009 (figures that do include business credit card lending). Statements like this from Chase and other banks are hard to verify, as Baseline Scenario’s James Kwak and the AP’s Rachel Beck have recently noted. What we think of as “small business lending” can cut across banking segments: retail, business, commercial mortgages, credit cards, etc. Here’s Kwak:
…banks can choose what they call small business lending, and they can choose to change the definitions from quarter to quarter. It’s not also clear (from the outside, at least) what counts as an origination. If I have a line of credit that expires and I want to roll it over, does that count as an origination? My guess is yes. Should it count as helping small businesses and the economy grow? No.
No doubt Chase’s policy is welcome news to the 200 business owners who had their loans approved on the second look. And it does suggest that banks can make more small business loans when they rely less on automated credit scoring and more on old-fashioned underwriting. But Chase’s ads tell a different story depending on how many rejected applicants asked for reviews — a few hundred? A few thousand? More than 10,000? We don’t know.