By: Julie Story
Reviving the economy by propping up small businesses is a common goal among banks, credit unions and lawmakers. In an effort to contribute, 13 private lenders - many of them that nation's largest banks - pledged to increase small business lending by $20 million during the next three years. However, one year following big banks' promise, their efforts have largely fallen short of their goals.
Ami Kassar, founder and CEO of MultiFunding, recently offered her analysis in a New York Times column, and noted that the banks and the Small Business Administration have failed to set clear guidelines for defining small business loans or benchmarks for how to achieve this aim. In interviewing executives from Wells Fargo, Bank of America and JPMorgan Chase, Kassar explained that few had particular details about how they planned meet their obligations. Upon contacting the Financial Services Roundtable, senior vice president of government affairs, Scott Talbott, told her that each bank is "different, and there is no universal formula for how they track that commitment."
Banks take separate approach toward business lending
However, one year into the pledge, it appears that what was designed to be a collective movement is now a fragmented approach to meeting its goals. In an interview with the Huffington Post, Kassar reported her astonishment at the process banks have taken and noted that "not every bank seemed to have its own specific goal, so it was hard to know how they planned to meet the aggregate commitment."
Further, she noted that big banks have not yet solidified an industry-wide definition of what constitutes a small business loan. She reports that although some banks define a small business loan as those made to businesses with revenue of up to $20 million, this definition "allows big banks to artificially inflate their small business lending records in their advertising and public relations efforts."
"These efforts send small business owners into their branches where they find slow and bureaucratic processes," she told the Post.
Credit unions and community banks, in contrast, have done their part to help small businesses secure the funding they need. Small business banking programs have been expanded in recent years, with credit unions alone seeing a 1.2 percent increase in business lending during the second quarter of 2012.