Banks are flat-out refusing to provide business loans unless the government fully guarantees them so they aren’t subject to any risk. It’s interesting, though hardly surprising, to see that the loan guarantees are actually making loans harder to get.
I own and operate a consulting company the end goal of which is to set up & provide loans through multiple funding channels to franchisees of large and small chains nationally. The chains I work with many of you will be familiar with —dominos, jersey mikes, massage envy, European wax center, the joint, club Pilates, jimmy johns, wingstop, Orangetheory, moes southwest. And many others. Point is I have BROAD spectrum national exposure to many industries
The banks I work with are SBA, conventional lenders who service smaller loans under 2mm and generally smaller operators of these franchise systems, and then larger banks who provide loans to larger operators from 2-50mm. I’m short — 20+ banks across ALL spectrum of SME lending
I fund 400-500mm in loans per year through these banks. In February we were on pace to fund well over 500mm and potentially 750mm — growing exponentially year over year. STIFF DRINK TIME. Since April 1st we have funded 5mm total through only 2 banks. Let’s dive in as to why.
SBA banks — they have lending limits to 5mm. Congress has authorized them to go to 10mm in the CARES Act but they have ignored it. This will become important later. They currently have guarantees from the govt at 80{4e01b0bc4ab012654d0c5016d8cbf558644ab2e53259aa2c40b66b3b20e8967d} – pretty good right? DOESNT MATTER THEY STILL WONT LEND
In fact they are pushing the government to guarantee 90{4e01b0bc4ab012654d0c5016d8cbf558644ab2e53259aa2c40b66b3b20e8967d} of the loans (and likely on their way to 100{4e01b0bc4ab012654d0c5016d8cbf558644ab2e53259aa2c40b66b3b20e8967d} — see my prior posts on the de facto nationalizion of the banking system). In short SBA has SHUT OFF BORROWERS waiting for more from Uncle Sam.
Current excuses ARE PLAYING BOTH SIDES (and this applies to all banking segments). A chain with increased sales since pandemic — no loan. “We want to wait to see if sales increases are sustainable” Doesn’t matter that sales are up. They may not be “sustainable”
On the other side for businesses with sales down — “well we just aren’t comfortable sales will rebound and we have concerns over COVID”. So sales up = no loan. Sales down or flat = no loan. Operator size IRRELEVANT. Are some banks lending? Yes. This is 75-80{4e01b0bc4ab012654d0c5016d8cbf558644ab2e53259aa2c40b66b3b20e8967d} of SBA banks. They are also being EXTREMELY selective on industries they will do. If you are an industry with “large public gatherings” you better pray to Santa Claus for money.
On to conventional banks. Little known fact is that 50+{4e01b0bc4ab012654d0c5016d8cbf558644ab2e53259aa2c40b66b3b20e8967d} have LEFT THE FRANCHISE LENDING SPACE ENTIRELY. Of the remaining 50{4e01b0bc4ab012654d0c5016d8cbf558644ab2e53259aa2c40b66b3b20e8967d} — 90{4e01b0bc4ab012654d0c5016d8cbf558644ab2e53259aa2c40b66b3b20e8967d} of those are not taking new clients. And they are not lending to their existing clients generally.
This is just one of the many reasons that a debt-based economy is a very, very bad idea. It’s the exact opposite of antifragility.