Bank lending important to small business

Much more important than expected in terms of financing small business. The total credit freeze when the financial crisis hit hurt everyone, but the ongoing credit crunch on small businesses and entrepreneurs may be a fairly big piece of the slow economic recovery puzzle.

From the link:

Small businesses are more sensitive to the contraction of bank lending than previously thought, and the conventional wisdom about how small businesses finance themselves may be hogwash, according to a new working paper from the National Bureau of Economic Research.

The paper, “The Capital Structure Decisions of New Firms,” found that newly created firms rely heavily on “outside” debt financing, such as owner-backed loans, business bank loans, and business credit lines. The average amount of bank financing is seven times greater than the average amount of
“insider”-financed debt — money from family members and personal networks of the owner. Those groups were previously thought to be the primary providers of fuel for start-ups.

From the department of, “no duh” — corporate cash hoarding

Companies are hoarding cash at insanely high levels. Bad for the overall economy and bad for the companies who retain overly large cash reserves as well.

From the link:

It isn’t for a lack of resources. Non-financial companies in the S&P 500 index reported $837 billion in cash at end of March, a hefty 26% increase over the previous year’s $665 billion, according to S&P. These are unusually high levels — companies are holding cash reflecting 10% of their value today. Since 1999, companies on average held cash equal to 6.6% of their value.

In many ways, the record levels reflect the scars of the financial crisis. Chief executives learned the hard way what happens when credit markets freeze, as they did in late 2008 and early 2009. And the country’s relatively grimmer economic forecasts aren’t helping as consumer spending continues to slump. The U.S. Commerce Department reported last week that GDP growth slowed during the second quarter, growing by 2.4% compared to 3.7% the previous quarter.

But while companies try to play it safe by upping their stashes of cash, hoarding does little good in the way of improving the broader economy. What’s more, it could hinder companies from prepping for future growth.

How banks are damaging small business and the economy

This ought to be sobering news for anyone still fretting over the state of the economy and why Main Street isn’t feeling anything close to a recovery right now.

From the link:

In the last two years, $40 billion worth of loans to small businesses have evaporated, and correcting the problem should be “front and center among our current policy challenges,” Ben Bernanke, chairman of the Federal Reserve, said in a speech Monday.

Loans to small businesses dropped from more than $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010, according to bank financial reports submitted to the Federal Financial Institutions Examination Council.

Looking at these two reasons for the dramatic drop in business credit the first certainly has a role, but the second is the actual killer. I know of many small businesses that would happily take on new debt but can’t because their credit lines were slashed to the bone (sometimes for no discernible reason other than the overall economy was bad) and haven’t seen that credit flexibility return to this day.

He cited weaker demand from Main Street businesses worried about taking on more debt during tough times, “deterioration in the financial condition of small businesses during the economic downturn,” and a lack of supply of available credit.

“Clearly, though, to support the recovery, we need to find ways to ensure that creditworthy borrowers have access to needed loans,” Bernanke said.

Some tax relief looming for small business

The tax relief package has comfortably passed the House and hopefully will finally make life a bit easier for startups and other small businesses.

From the link:

The bill, which would eliminate capital gains taxes on investments in small businesses, passed on a vote of 247-170.

It is a companion bill to legislation backed by President Barack Obama that the House is to consider on Wednesday. That bill would create a $30 billion fund to encourage community banks to lend to small businesses.

“Small businesses need capital to create jobs and lead our economic recovery and these bills contain important tax cuts and lending opportunities that will help give small business owners the resources and flexibility they need to help their businesses grow,” said House Ways and Means Committee Chairman Sander Levin.

The bill gives small businesses a bigger tax break on start up costs and creates a program to help small businesses struggling to repay loans.

Recovery still hasn’t reached Main Street

I’m sure this is not news to all of us Main Streeters out there. The stories I’ve been hearing from small business owners are just incredible. People with impeccable credit histories having credit lines slashed to almost nothing, companies offering payment plans never before considered only to find the customers still unable to meet the soft terms and enough accounting tricks to try and deal with the facts on the ground to make your head spin. Nope, the recovery still hasn’t made it to Main Street.

From the link:

The economy may be showing halting signs of recovery, but the turnaround hasn’t reached Main Street yet: A pair of recent small business surveys found that most owners are skeptical or downright gloomy about their business prospects this year.

“Something isn’t sitting well with small business owners,” Bill Dunkelberg, chief economist of the National Federation of Independent Business, said in a written statement accompanying the latest edition of his organization’s monthly “Small Business Optimism” report. “Poor sales and uncertainty continue to overwhelm any other good news about the economy.”

Capital expenditures remain near record lows, sales are still weak, and credit lines are hard to find, according to the around 950 business owners NFIB surveyed in March. While job cuts have slowed, few businesses say they plan to hire new workers within the next three months.

Corporate belt tightening led to cash reserves

Of course all this liquidity was wrung out of Main Street and the lifeblood of the economy — the workforce.

From the link:

The brutal recession has left many American families, small businesses and state and local governments in financial ruin or teetering on the brink.

But it’s a much different story for the nation’s biggest companies. Many have emerged from the economy’s harrowing downturn loaded with cash, thanks to deep cost-cutting that helped drive unemployment into double digits.

And although the banking crisis starved countless entrepreneurs for money last year, credit was never scarce for business titans.

Merchant cash advance, a small business capital option

There’s a serious credit crunch out there right now, as anyone in business — particularly small- to mid-sized business — knows. Remember all that TARP bank bailout money from fall 2008? The biggest recipients of federal dollars continue to cut lending to small companies and seven of the top 11 TARP banks cut their small business loan balances every reporting month from the time they received taxpayers dollars through the end of 2009. Small Business Administration-backed loans are taking up some of the slack, but where else can a small company turn when looking for loans for business or just extra operating capital?

Merchant cash advance

One option is the merchant cash advance market. This industry has existed for around a decade and has really ramped up during these tough economic times coupled with an extremely tight credit industry. Merchant cash advance providers give businesses a lump sum of immediate cash in exchange for a percentage of future sales or future credit receivables. A disadvantage of a merchant cash advance is the equivalent interest rate can be pretty high when compared to a more traditional business bank loan or line of credit, but this capitalization option does offer some advantages over working through a bank.

The upside

The key upside is it’s available, and right now a bank loan in this credit market just might not be an option. Other advantages include a relatively quick approval process, bad credit won’t prevent you from obtaining a merchant cash advance and the only collateral you really need is strong credit card sales.

If you decide to pursue a merchant cash advance remember to consider the money you’re advanced as a loan to be repaid, not as just some extra cash going into the business account. Merchant cash advances aren’t the best way to capitalize your business, but they serve a very necessary function for businesses looking for, or needing, liquidity in a tight credit economy.

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A new small business loan solution from a Congressman

Raise the cap on credit union small business lending. Sounds reasonable.

From the link:

Rep. Paul Kanjorski (D., Penn.) has offered one solution to this problem: lifting the cap on credit unions’ loans to small businesses, allowing them to extend more loans to help the economy grow. When I spoke with Rep. Kanjorski about his proposal, he told me that credit unions lent wisely before the crisis, and are lending more now. Credit union business lending grew by more than 11% in 2009. Now credit unions are facing a statutory cap on lending. To fill a void in business lending, Rep.Kanjorski says credit unions need Congress’ help.

Small business loan relief courtesy of Congress

Finally.

From the link:

Added incentives for banks to make Small Business Administration-backed loans will continue through the end of March, thanks to a fresh funding infusion authorized by Congress as part of Tuesday’s bill extending unemployment benefits.

Since early last year, the SBA has waived its fees and offered banks guarantees of up to 90% on the small business loans the agency backs. Created as part of the Recovery Act, the deal sweeteners helped SBA-backed lending rebound from its near collapse in late 2008, in the wake of the financial crisis.

Congress initially authorized the incentives to continue through September of this year, but the measures proved so popular that their funding was quickly exhausted. The SBA has been relying since late November on temporary extensions to keep the incentives running.

The unemployment benefits extension bill — passed by the Senate and signed by President Obama late Tuesday after Sen. Jim Bunning, R-Ky., dropped his objection — allocates $60 million to fund the program’s subsidies for another month.

Just this issue alone illustrates how Bunning’s so-called “principled” roadblock tactic put real short-term hurt on Main Street. Over 100,000 federal employees missed a paycheck because of that asshat’s grandstanding. How would you like to make a mortgage, or other bill, payment late because one Senator wanted to make an inane point about federal spending? Particularly a Senator who offered no fiscal backbone for eight years of profligate federal spending with zero attempt to pay for the outlay under the previous administration.

Small business still being ground down by credit crunch

I’ve done a lot of blogging about the ongoing credit crunch, and last week exposed an article at Forbes that attempted some linguistic sleight-of-hand to argue — quick look at my waving hand over here — there is no credit crunch.

Here’s an article on the same topic from CNN Money that actually cites some real numbers on just how tough things remain for Main Street, and maybe just a little bit why small- to medium-sized business owners are still chafed over the bank bailouts from the fall of 2008.

And yes, small business and personal households are truly suffering under a crippling credit crunch that does not have an ending point in sight.

From the link in the second graf:

Small business loans continue to dry up at the nation’s biggest banks. Eleven top TARP recipients — including Wells Fargo, by far the nation’s largest lender to small companies — cut their collective small business loan balance by more than $2.3 billion in December, according to a Treasury report released late Tuesday.

The drop marked the eighth consecutive month of declines for the 11 banks. In that time, their total loan balance has fallen 7%, to $169.4 billion. Seven of the reporting banks have cut their small business loan balance every single month.

“Credit is still tight for many small businesses,” the Treasury acknowledged in a Feb. 10 report.

The 22 banks that got the most help from the Treasury’s bailout programs have been filing monthly lending reports to the government, and since April, they’ve been required to break out their small business lending. But as of this month’s report, the 10 banks that have completely repaid their bailout funds in June are no longer required to divulge their lending.

Quite the misleading lede

Here’s the lede in an article about the banking industry and the ongoing credit crunch:

Those wicked bankers–refusing to lend to small businesses! So say the pols. The reality is something else.

You read that and think, man this whole credit crunch thing is just some sort of hoax cooked up by the mainstream media or opportunistic politicians. Then you hit the link up there, read the article and realize the gist of it is a lot of businesses have drastically cut expenses and are now self-capitalizing because profitability is up and operating costs are down.

The problem there is those companies drastically cut expenses — those pesky things like salaries for jobs that no longer exist and such — because the banking industry completely screwed Main Street and continued a ridiculous credit squeeze long after receiving billions in Federal bailout money. And trust me, the credit crunch is still going on.

It’s great some companies managed to pare down to the point of self-capitalizing. But I bet both the newly unemployed from those companies, and the now overworked employees doing a job that once was covered by two, or more, workers would prefer for those companies to hoard a little more cash (something like what banks are still doing) and dip into the credit market to cover operating costs. I bet some of the companies would love to do just that, but can’t — why?, because of that still overly tight credit market

Recycling TARP funds for small business loans

As much as I think the deficit is a significant issue, the ongoing credit crunch for small business is a much more pressing issue for the economy. Recycling money that bailed out Wall Street to give Main Street a leg up is probably good politics, but more importantly, it is good policy.

From the link:

President Obama called on Congress Tuesday to recycle $30 billion of the remaining Troubled Asset Relief Program (TARP) funds into a new government lending program offering super-cheap capital to community banks that boost their small business lending this year.

Touted last week in Obama’s State of the Union address, the plan is the latest incarnation of a proposal the president first floated in October. While credit conditions for large businesses have improved over the past year, small companies are still widely reporting problems finding the capital they need to fund their operations.

The small business credit crunch and unemployment

These two elements — little to no credit for small business and a difficult rebound from deep unemployment — are integrally tied together. Small business jobs are the backbone of the U.S. economy, and small businesses need revolving credit to help ensure cash flow. When your accounts receivable go from averaging 20 days to averaging 45 days, ongoing business expenses become an issue.

I know several small businesses that are currently in a state where invoices are getting paid late so in consequence the companies pay late and the entire cycle helps no one. With banks not providing credit to worthy small businesses the entire system is being ground down by a lack of liquidity.

This example is almost beyond belief and perfectly illustrates where the banking industry — both local and national — is doing real damage to the economy’s small business backbone.

From the link:

Veteran Chicago restaurateur Ivan Matsunaga needs a $300,000 loan to finance a renovation of his flagship pizza restaurant into a higher-end eatery. The revamp is required for his lease renewal, but it will also create job opportunities: Matsunaga estimates that he’ll need five additional staffers to run the updated restaurant.

Three banks turned down his loan request — including a community bank Matsunaga personally invested in at its launch three years ago.

“How perplexing is it that they would not reciprocate? What type of banking environment exists where they currently have $100,000 of my money and yet they won’t give me a loan?,” Matsunaga asked at the hearing. “If my bank were to approve my loan today, I, for one, would create jobs immediately.”

Big banks have shaved more than $10 billion from their small business lending totals over the past six months, which drew sharp criticism from Senators at Wednesday’s hearing. “I know that my situation is not unique,” Matsunaga said. “I have had numerous discussions with my peers who are frustrated by these same issues.”

More news from the “no duh” department

Today it’s from Treasury Secretary Tim Geithner:

“This credit crunch is not over,” Geithner at a small business financing forum in Washington hosted by the Treasury. “It may feel dramatically better for large companies, but it is not over for small businesses across the country.”

Small business loans down over $10B

Yep, you read that header correctly — more than ten billion dollars of available credit has disappeared for small business while Wall Street and big banking rolls in federal funds.

Disappointing.

From the link:

The 22 banks that got the most help from the Treasury’s bailout programs cut their small business loan balances by a collective $10.5 billion over the past six months, according to a government report released Monday.

Three of the 22 banks make no small business loans at all. Of the remaining 19 banks, 15 have reduced their small business loan balance since April, when the Treasury department began requiring the biggest banks receiving Troubled Asset Relief Program (TARP) funding to report monthly on their small business lending.

Sanity from the Hill on small business

Hear, hear Mark Warner!

From the link:

The Obama administration should spend more money from the $700 billion bank rescue on programs to increase lending to small businesses, said Senator Mark Warner, a Virginia Democrat on the banking committee.

Warner and other lawmakers are pushing regulators to consider ways to jumpstart credit to small companies, which he says is dwindling even after efforts to provide government support. The senator urged action at a meeting of the Senate Democratic Caucus yesterday.

Treasury Department officials said they are in discussions with Warner, Senator Mary Landrieu, a Democrat of Louisiana, and Republican Olympia Snowe from Maine, on how to address the issue, either through the Troubled Asset Relief Program or new legislation. A $15 billion program to purchase pools of small- business loans, announced in March, has attracted little interest even though it’s ready for use, an administration official said.

“The original notion of the TARP was, we were going to help Main Street by bailing out Wall Street,” Warner said in an interview. “We’ve seen Wall Street recover, but we have not seen Main Street reap the direct benefits.”

Small business and capitalization

Looks like entrepreneurs are turning more often to alternate finance in this weak credit and economic climate.

From the link:

The credit binge and the crash that followed have left entrepreneurs in a bind. Banks, faced with rising defaults, dramatically tightened lending standards to reduce their risk. Small business owners who borrowed liberally when credit was easy were blindsided by the downturn, and many now find their credit scores wrecked. Those with little debt on their books but facing slipping sales are also perceived as risky: They’re shut out of traditional loans and even credit cards, and represent a growing market of businesses that banks won’t touch.

Enter the alternative finance companies. They include asset-based lenders (which make secured loans for purchases of equipment or inventory), factors (which buy unpaid invoices at a discount), and merchant cash advance providers (which pay up front for the right to collect a share of a retailer’s future credit-card sales). These sources of funds generally cost more, sometimes much more, than bank credit. But businesses that survived the recession will need to buy inventory and equipment, expand operations, and hire workers during a recovery—and they are finding few other options to fund their growth.

Auctioning accounts receivable

An interesting source of cash for small business during this ongoing credit crunch.

From the link:

Cash flow has become a leading concern for small firms as banks reduce credit lines, shorten maturities and raise rates, according to a May study by the Credit Research Foundation. Among the companies surveyed, 45% said the financial crisis was straining their access to working capital. Almost 70% reported a slowdown in customer payments, and 61% said their top priority was to boost cash flow by getting clients to pay what they owe faster.

The Receivables Exchange (TRE), which runs an online auction market for accounts receivable, is benefiting from these trends. More companies have been turning to the two-year-old firm to raise money as traditional credit sources dry up.

“We take the most liquid of the assets on the balance sheet that they can modify and allow those to trade on a transparent, standardized exchange,” says Nicolas Perkin, president of the New Orleans-based company

Credit crunch continues

The headline for this linked article is, “Fewer banks tightened credit standards, Fed reports.” Very misleading in terms of the reality on the ground.

Here’s the real news from the subhead:

But credit availability probably won’t return to normal before mid-2010, report says. Also, the Fed and Treasury extend the TALF emergency financing program aimed at boosting lending.

End of credit crunch in sight?

Maybe. If nothing else things are looking better. Seems like a lot of indicators are on the uptick right now.

From the first link:

Multiple market signals are leading analysts to bet that the worst credit crisis since the 1930s is easing, as debt markets slowly heal after two years of extreme upheaval.The return of private investors to markets they had shunned as recently as the first quarter this year, a surge of corporate debt issuance, and the easing of inter-bank lending rates all indicate that financial rescue measures by government are working, analysts said.

Yet while debt markets are on the road to recovery, turning around a battered economy will be a longer haul that’s still fraught with danger, they said.

“The revival of corporate bond issuance and the narrowing of spreads from the peaks are good news,” says Ward McCarthy, managing director with Stone & McCarthy Research Associates, in Princeton, New Jersey.

The bad news however includes “continued poor performance of many financial firms and the persistent reluctance of banks to lend,” especially to homeowners, adding stress to an already strained housing market, said McCarthy.

U.S. house prices are still sliding and foreclosures rising in many places. Federal Reserve Chairman Ben Bernanke has warned the job market may struggle for another two years.

Home equity credit crunch hurts entrepreneurs

Many small business have been relying on home equity loans as opposed to Small Business Adminstration loans or lines of credit based solely on the business. This avenue of funding has proven to be very, very volitile in today’s financial market. As home value drops, banks are very quick on the draw to freeze home equity credit. Just one more obstacle in the path of Main Street business.

From the link:

As home equity lines vanish, other avenues of small business financing are also running dry. More than 40% of small business owners polled in April by the National Small Business Association said the limits on their credit cards had been cut in the past year, and 63% said their interest rates went up. Bank lending is in freefall. Even with stimulus incentives, the SBA backed 30% fewer bank loans to small businesses last quarter than it did a year earlier. The agency’s lending volume has dropped to less than half what it was before the recession set in at the end of 2007.

The allure of home equity loans is their liquidity: Business owners can tap cash without submitting detailed business plans. But easy access can be a double-edged sword.

“Used properly, home equity lines of credit are great and get the job done. But a business that isn’t self-sustaining can’t pay it back, and that’s where the problem lies,” says Norm Bour, a debt management strategist and founder of BusinessCashFlowPros.com in Laguna Niguel, Calif.

Small business should go to small banks for loans

It’s a confusing credit situation out there for small business, but it looks like entrepreneurs who hit up smaller banks for money have a much greater chance of securing the needed loan. If this plays out correctly on the ground it could get small business and small banking back on the same team.

At one point in time bank mangers and presidents had personal relationships with small business owners and could make gut-level decisions to help the entrepreneurs. As all the business went toward larger banks small business owners were subject to the whims of loan risk algorithms and random policy shifts that could, and did, impact the bottom line.

A friend of mine last year went through just that with a major bank that doesn’t exist in name any longer. A policy shift and manager transfer left his account wildly overdrawn for no reasonable reason from a business perspective. The event cost him a fair bit of money, but luckily not any contractors working under him or contracts he was servicing.

Small business owners, the lesson is get local with your banking, and hopefully you’ll develop relationships that can last with the decisions makers at your local banking institution.

From the link:

At first blush, the evidence seems contradictory. On one hand, many national banks have drastically cut back small-business lending. In addition, Advanta, a major issuer of small-business credit cards, declared on May 12 that it was closing customer accounts to new charges.

 On the other hand, the Federal Reserve’s April survey of lending practices showed credit conditions have loosened. The Small Business Administration says the weekly volume of loans to small businesses is up more than 25 percent since March. And community banks, those smallish, old-fashioned institutions that make up the vast majority of the country’s 8,300 banks, say that they are ready to take back customers from the national lenders.

Much of the confusion has its roots in contrasting banking strategies. Big national banks are much more likely to have been drawn into the morass of securitized loans, credit-default swaps and the like, which has forced them to preserve capital by curtailing lending.

The smaller banks, meanwhile, have traditionally made their livings off of loans that they carry on their own balance sheets to individuals and small businesses. For them, despite the economic crisis, the current situation is more or less business as usual.

Indeed, a May survey of 1,500 small businesses by Barlow Research Associates found that companies that applied to small banks for loans in the past year were three times as likely to get credit as those who applied to large banks.

Small business and no credit, an explanation

Here’s about as as good an explanation as I’ve come across why big finance still isn’t putting capital into the hands of small business owners.

Big hint: it has nothing to do with the financial condition of that small business. It also seems bank regulators aren’t on the same page as the bailout artists who are trying to get more dollars into Main Street businesses.

From the link:

The phenomenon may extend well beyond Chase and its borrowers. “I’m hearing it more and more,” says Stacey Sanchez, senior community loan officer with San Diego-based CDC Small Business Finance, a community development corporation, who says entrepreneurs often turn to her institution when their credit lines are pulled. Sanchez says the increased aggressiveness on the part of lenders may be due in part to banks now being in possession of 2008 tax returns for most of their clients, which show the full ugliness of the last quarter of 2008.

And suspending lines of credit is certainly an efficient way to reduce the risk on a bank’s balance sheet. According to officials at the Office of the Comptroller of the Currency, bank reserves for bad loans are based on the total exposure to a customer. So if a bank has a $100,000 line of credit with a small firm and only $20,000 is drawn down, the total exposure is still $100,000, and the bank usually will reserve for loan losses based on that amount. But if they convert the $20,000 outstanding to a term loan and cancel the line of credit, or if they simply cut the line to $20,000, the reserves would be based on that $20,000 figure.

Regulatory pressure likely plays a part as well. Bert Ely, an Alexandria (Va.)-based financial-services consultant, says he hears repeatedly from banks around the country that while the White House and Treasury talk about the need for lending to small business, local bank examiners continue to pressure them to upgrade the quality of their loan portfolios. “You have a disconnect between what policymakers are saying and what the rank-and-file bank examiners and supervisors are saying,” Ely says. That has painful repercussions for business owners around the country.

Small business credit crunch

Tight, or no, credit for small business continues. Here’s some tough advice from Doug Tatum, co-founder and chairman emeritus of Tatum, an Atlanta-based consulting and executive search firm that specializes in helping growing companies with finance issues. Tatum is the author of ”No Man’s Land: What to Do When Your Company Is Too Big to Be Small and Too Small to Be Big” (Portfolio, 2007).

From the link:

Q.What’s your advice for businesses looking to borrow money these days?

 

A. Quit trying. The credit markets are tougher than I’ve ever seen them, aside from the Carter years.

Q.But it takes money to make money, right?

A. Entrepreneurs have a limited amount of bandwidth, and they have to quit wasting their time chasing the impossible. They need to think about how they can change their business model to become profitable. That’s where the capital to grow will come from. I just spent some time with a health care consulting company that pulls in $6 million in [annual] revenue with plans to grow to $10 million. They are just bobbing, weaving and growing despite how hard it is out there.

Q.Why hasn’t the government been able to open up the credit markets?

A. Banks have become cautious about what they have on their balance sheets. They still don’t know what their portfolios are worth. That means they’re waiting for the next shoe to drop, which could be the commercial markets. I talked to the C.E.O. of a community bank who told me that they have the regulators telling them when and where they can lend money. So while you might have politicians saying, ‘Lend, lend, lend,’ the regulators are holding the banks back.

Credit crunch continues to hurt small business

This seems like an area ripe for stimulus. Main Street and all that …

From the link:

Business brokers, who bring buyers and sellers together, say there are a growing number of people who want to buy, including many who have lost their jobs over the past year and need to make a living. And there are plenty who want to sell, including baby boomers hankering for retirement.

Getting financing for deals is still tough, although the government has taken steps to make Small Business Administration loans easier to obtain. The brokers say banks are not only uneasy about borrowers, they’re also questioning the health of the companies up for sale.

“Even with those changes, we feel that it seems as if the money may never reach the small business owner,” said Jeff Hoops, senior vice president of The Haley Group in Paso Robles, Calif.

Small businesses have found it hard to borrow from banks for years, long before the recession; a neophyte owner or company has been too risky for many banks to take on. The recession and banks’ unwillingness to lend in general over the past six months have made it that much harder.

Saving money in a small business

Some tips from Forbes:

With credit locked up and consumers on the sidelines, small businesses should be sleuthing for any and all ways to shave expenses. Chopping heads only gets you so far–slice into muscle and you may be too hobbled to ride the rebound.

“Many think that the next step is to eliminate head count, but they will almost certainly be late when recovery comes,” says Ken Hagerstrom, chief executive of Carlsbad, Calif.-based consultancy Expense Reduction Analysts.

January auto sales down almost 40%

Couldn’t have anything to do with the fact banks aren’t giving out auto loans for the most part could it?

From the link:

Auto sales tumbled 38% in January, plunging even more than expected to their worst levels since 1982 as a pullback in purchases by rental car companies became the latest problem for the troubled industry.General Motors (GM, Fortune 500) reported that its sales plunged 49% from a year ago. Ford Motor (F, Fortune 500) said sales fell 39% at its Ford, Lincoln and Mercury brands, and 40% overall when including sales at Volvo, which Ford is trying to sell. Chrysler LLC reported a 55% drop in sales.

But it wasn’t just the U.S. automakers reporting sharply lower sales. Toyota Motor (TM) reported a 32% decrease in its U.S. sales, while sales at Honda Motor (HMC) tumbled 28%. Nissan (NSANY) sales fell 30%.

Banks still not lending

Yep, that financial sector “free money, no strings” bailout last year really looks good right about now. The entire concept, at least as it was sold to the public, was to give banks cash so they could ease the credit crunch and start lending money apace.

Here we are months later and credit is still tight. Very tight.

From the link:

Many banks have made it harder for borrowers to obtain all kinds of loans over the last three months despite a $700 billion federal bailout program and a flurry of other bold moves to stem the worst financial crisis to hit the U.S. since the 1930s.

The Federal Reserve in its quarterly survey of bank lending practices released Monday found large numbers of banks reporting tighter credit standards across a broad range of loan products _ from credit cards and home mortgages to business loans.

Nearly 60 percent of banks responding to the survey said they had tightened lending standards on credit card and other consumer loans, about the same share as in the previous survey released in early November. And about 80 percent of domestic banks said they tightened lending standards on commercial real-estate loans, slightly less than the roughly 85 percent that reported doing so in the previous survey.

All told, though, the proportion of banks that “reported having tightened their lending policies on all major loan categories over the previous three months stayed very elevated,” the Fed concluded.

Greg McBride, senior financial analyst at Bankrate.com, predicted that banks _ whose lax lending standards for home mortgages contributed to the financial meltdown _ won’t be in any rush to loosen lending standards.

“Even when lenders come back to the marketplace and become willing to lend again, who they lend to is not going to change,” McBride said. “The tighter qualification standards that we’ve been seeing are here to stay for the foreseeable future regardless of whether or not there is stress in the credit markets and a deep recession. Lenders won’t go back to giving out credit like candy anytime soon.”

Bank nationalization backgrounder

Courtesy of the Wall Street Journal. The topic of bank nationalization is going to be all over the place for while. If you’re wondering what it’s all about and how it might affect your day-to-day banking hit the link. Plenty of material there on loans, disadvantages and more.

A sample from the primer:

What does “bank nationalization” mean?

A nationalized bank is owned and run by the government. The shocks of the credit crisis last fall spurred lawmakers to seminationalize the banking sector; nearly 314 institutions have already signed over some of their shares and other securities to the Treasury in return for $350 billion in government TARP funds. The government could now go a step further by taking complete ownership of certain troubled banks.

Why nationalize banks?

It makes sense only if banks are in danger of failing. In Western countries, nationalization is largely used as an emergency method to prop up banks during tough times. It is typically used to lend to small and medium-sized businesses and restructure burdensome loans to consumers.

Collection agency gives up and uses witchcraft

Yeah it’s Lithuania, but this is comical. I hope it’s a hoax. If not, good luck there, guys. Lets us all know how this turns out.

From the link:

In these difficult times for creditors, a Lithuanian debt collector is offering an unconventional service to retrieve arrears: witchcraft.

The Vilnius-based firm has hired Vilija Lobaciuviene, the Baltic nation’s most famous self-styled witch, to hunt down companies and individuals who are failing to pay their debts amid the credit crunch.

“There are certain people, who are using this crisis situation and refuse to pay back banks or other companies,” said Amantas Celkonas, director of the Skolu Isieskojimo Biuras, or debt collecting bureau.

“Our new employee will help them to understand the situation, reconsider what is right and wrong and act accordingly,” he said. “We will also help those who are in real trouble, suffering from psychological impact of bankruptcy and depression.”