Despite Credit Availability, Economic Pessimism Persists (Bottom Line by Robert Bell)

For several months now, anyone who hasn’t been living under a rock has most likely heard about the credit crunch — typically considered a problem for big investment banks.

The subprime mortgage fiasco has caused many of these big banks to pull back on lending, especially in the wake of casualties such as investment titan Bear Stearns, which was toppled by too much bad debt.

With concerns about recession mounting, many small business owners might wonder if or to what extent the Wall Street woes might cause Main Street migraines, and whether that would limit their access to credit.

The answers — according to the April Small Business Economic Trends report, assembled by the National Federation of Independent Businesses — seem to be “yes” and “no.”

“There’s been no change in credit availability on Main Street,” said Bill Dunkelberg, one of the report’s authors and the chief economist for the NFIB.

Dunkelberg is also a professor of economics at the Temple University School of Business and Management, and has served on the Consumer Advisory Council of the Federal Reserve System.

According to the report — which surveys members on business conditions — credit availability hasn’t changed in the last 10 to 15 years.

Between 2 percent and 3 percent of respondents said credit is their biggest problem, compared to about 40 percent in the ’70s and ’80s, he said.

Despite, the availability of credit to small business owners, “people are pessimistic about the economy,” Dunkelberg said.

The report’s Index of Small Business Optimism fell in March to its lowest monthly level since the NFIB began monthly surveys in 1986, and its lowest overall level since the second quarter of 1980.

Dunkelberg reiterated that the credit crunch is an issue of big banks not lending money to each other, not a matter of banks not lending to entrepreneurs.

“Big banks can fail, but it won’t matter on Main Street, because small businesses don’t borrow from Bear Stearns,” he said.

“There are 7,000 banks on Main Street who don’t invest in fancy schmancy products,” he said, referring to the complex investment products, such as collateralized debt obligations, which many analysts have blamed for the massive write-downs at big banks.

Arkansas Bankers Still Pursuing Small Business

Metropolitan National Bank has seen a slight decline in the number of requests for small business loans, said Jim Coffey, vice president and commercial relationship manager.

The bank was one of the top Small Business Administration lenders in the state, according to lists published in Arkansas Business and the Northwest Arkansas Business Journal.

Data from the lists indicate that MNB made 51 SBA loans in 2007, totaling nearly $6.3 million. In 2006, the bank made 90 SBA loans totaling $10.4 million. SBA loans typically account for 25 percent to 30 percent of the bank’s overall small business loans, Coffey said.

The decline in loan requests is the result of the economic conditions in the last year or so, he said. Though the number of loans the bank has made is about the same or even higher than the number it made in 2006 and 2007, the dollar value of those loans is less.

As of March 31, which is halfway through the SBA’s fiscal year, MNB had made 28 of the loans totaling about $2 million, Coffey said.

“We’re seeing a slowdown in applications, but we are still aggressively making small business loans,” he said. “We are stepping up our marketing efforts, and we’re very committed to making small business loans and fostering the formation and growth of small business in Arkansas.”

Coffey said when the economy slows down, many people tend to put in more time researching projects and are more likely to think twice about expansions if they are already in business.

Many of the proposals MNB has seen for small business loans are for projects that are smaller in scope, many of which don’t involve real estate purchases.

Another lender that will still go after small business loans is The Bank of Fayetteville.

In 2006, the bank made 11 SBA loans totaling almost $5.1 million, but by 2007, made only a single SBA loan for $140,000, according to the lists.

Nonetheless, the bank is “not going to back off from going out and getting them,” said Matt Mason, area loan manager with BOF, regarding small business loans.

“But the ones we go after will be looked at very closely,” he said. “We’re not going to give the bank away.”