The lending market: the ins and outs are complex, but I do know that I can’t get an equity loan for my business.
As I write this, we are two days away, supposedly, to the deadline when our nation must raise our debt limit or default on our debt. Those last four words are nothing more than a ridiculous scare tactic. Avoiding default is done by making interest payments on debt, which can be done with relative ease regardless of what happens. Now that’s not saying we shouldn’t raise the debt limit anyways, but I bring this up only to say that scare tactic or not, markets, including lending markets, can and will react to whatever action takes place as the network of participants decipher the situation in their own ways.
This brings me to my main point, which is far from strictly related to the current fiscal issue making the headlines. Small businesses all over the country, who are charged with maintaining the lion’s share of private sector employment, are finding it next to impossible to get a business loan. The reasons are many, but they all center around the uncertainty swirling around our country’s economy and recently imposed federal regulations on what exactly a bank’s balance sheet is supposed to look like. What is certain, and I speak from direct experience as a small business owner, is that the unavailability of capital makes it next to impossible for businesses to expand or improve in any way, and that makes employment and the economy as a whole unlikely to improve any time soon.
I am lucky enough to own the building in which I do business. Based on current commercial real estate estimates, I have in the neighborhood of $650-750 thousand dollars of equity in that building. (Sadly, based on figures obtained in 2007, that number would be closer to $900k-$1million. Oh if only I knew then what I know now.) However, despite having such an asset on which to secure a loan, I have been turned down repeatedly by many banks on my application to tap some of that equity for capital improvements in the building and business. Having proof of being able to cash flow the required payments on such a loan has proven worthless.
Our floors need to be redone. Our coolers need to be updated. Our products need to be refined. All of these things would make us more competitive in the local market and further able to offer jobs to the community. Without these things getting done, my company stands on shakier ground when it comes to our immediate survival and there lingers the possibility that my employees will enter the unemployment line, worsening the already dire economic situation. And their own lives, of course.
Why is this lending market so bad? There are many reasons. Complex ones, too. But they all have to do with uncertainty and inconsistent regulation. Will our country default on it’s debt? Are taxes going to increase? Will we have to play by new rules imposed on us? What are a banks balance sheets supposed to look like exactly? Why make business loans to local communities when a bank can make more money trading securities?
The availability of capital to the credit worthy is paramount to a healthy business environment. A healthy business environment is paramount to a healthy employment rate. A healthy employment rate is paramount to a healthy economy. A healthy economy is paramount to a healthy quality of life for our country’s citizens. The best way for our government to iron this out is to eliminate the uncertainty of it’s fiscal agenda and be clear and consistent in any regulations they make on a lending market. Until that happens, and I don’t see it happening under this President and this Congress, I’m going to have to keep looking at my beat up floors and hoping that I can hold on long enough for relief to eventually come. And the next chance of that is most likely the fall of 2012.