1. Posted on Mon, Jul. 12, 2010
Banks, Feds making life harder for small firms
BY DENNIS NASON
Special to The Miami Herald
The constant chatter from Washington about how they are going to help small businesses is like a sad
joke with no punchline. Despite lots and lots of talk, quite the contrary is happening. Banks are not
lending to small business in any meaningful way and they won't.
In fact, contraction is underway, the effects of which will be shown in continued shuttering of storefronts
and emptying offices. For small businesses today, success is measured in terms of survival.
What is so wrong with the government response? Let's start with government incentives for small
business, such as tax credits for new hires.
One has to be making money to take advantage of tax credits. You cannot subtract credit from losses.
Besides, who wants to take on new hires until there is some hope of a steady cash flow to pay for
them?
SBA loans are easier to get -- if you have real assets to pledge, and there are few business people who
have property not already leveraged.
Why pay 5 percent more for the hassle of a government loan, if one can get a second mortgage for that
property at half the rate? It makes good press but few are ever disbursed.
The government defines small business as up to $50 million in sales, but in this market, that is a pretty
big company.
For most small businesses the major form of credit is the corporate credit card. These credits have
been capriciously cut in half and if one still has this formerly dependable financing alternative, it is
probably at 25 percent.
And these are the simpler problems.
The more serious issues have to do with the weak conditions of the banks themselves and the changing
nature of the client-bank relationship.
By relationship I mean every man for himself and survival of the fittest.
If you are fortunate enough to have had a line of credit, it may be frozen or pulled. Community banks
are under siege by regulators to get their portfolios and leverage under control. Washington adds to,
rather than resolves, small business' problems.
Further, the regulators are all over the quality of assets, which are now suspect since many small
businesses are just now providing tax returns reflecting last year's losses.
Even though the businessman has been repaying and is current, his assets have deteriorated. His
losses have sucked up his cash and as he struggles to regain stability, lines are being cut and frozen.
The bank's response? Sorry old friend, we are fighting for our own survival.

2. Weak banks may not make reliable partners. If one should choose to clean up a line of credit, there is
no guarantee of getting it back.
This scene will be commonplace in the coming months and will exacerbate the problems of the weaker
banks.
The new wave of credit problems is about to roll in and will hit much closer to home.
Recovery? Not quite yet.
Hopefully well-run businesses and professional practices can hold on until enough money sloshes
through the system to surf to safety, but don't expect much help from the government or your banks.
Dennis Nason is the CEO of Nason & Nason, a recruiting executive search firm specializing in banking
and finance.
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