Banks know what the public wants to hear: They're lending money to the little guys.
JPMorgan Chase & Co.'s new ad campaign publicizes the bank's plans to lend $10 billion to small businesses this year. Other banks, including Wells Fargo & Co. and Huntington Bancshares Inc., also say they'll extend more small-business loans.
Bold promises, for sure. Just don't expect to know many details on how they're delivered.
Forget searching for "small business loans" on the banks' Web sites to get specifics on the progress of these new programs. Same goes for digging into the banks' finances, because you aren't going to find this segment broken out in one spot.
"You can't," says JPMorgan Chase spokesman Thomas Kelly.
Instead, the banks say they'll keep the public posted on how their loan programs are going. That means they get to tell us what information they want, when they want and filtered the way they want.
They've even got leeway in how they define small businesses since there isn't a universal standard.
What's at issue here is that banks have been criticized for their reluctance to lend over the last year and a half. Many small businesses have especially felt that pinch because unlike larger companies, which can raise money through stock or bond sales, smaller businesses rely more heavily on bank lending to run their operations.
Now the banks say that's changing. While no one is accusing them of lying about their lending plans, it will be hard to know if they keep their word because accounting rules don't require them to disclose their loans based on size or type of borrower.
"(The banks) get to pick and choose what numbers they tell us without having to give any context," says James Kwak, who writes for the financial and economics blog The Baseline Scenario. "It doesn't mean they are sinister, but their numbers will be hard to verify."
Small businesses have been among the hardest hit by the tightening of credit over the last two years. Banks have dramatically curbed loans to startups, those losing money or anyone with risks in their business profile.
Some 11 percent of the 2,114 small-business owners surveyed in February by the National Federation of Independent Business said that they couldn't get their borrowing needs met, a record high. On the flip side, only 27 percent were able to get the loans they needed, a record low for the survey since it started in 1983.
The government generally defines small businesses as those with fewer than 500 employees. If these companies can't borrow, it's bad for the overall economy since they employ over half of all private-sector workers.
That's why there is such a fuss over news that banks are becoming more willing to lend again to small businesses.
Wells Fargo says it plans to increase its small business loans by as much as 25 percent in 2010 to $16 billion. The San Francisco-based bank hopes to tap the contacts its 6,000 branches have in local communities to get that message out. It is also promoting this program online and through bankers who specialize in small-business lending.
Huntington Bancshares, based in Columbus, Ohio, plans to double its annual small-business lending to $4 billion over the next three years. It expects to do $1.2 billion in new loans in 2010, up from $800 million in 2009.
JPMorgan Chase is running newspaper ads in major markets including New York, Chicago, Los Angeles and Dallas. With the headline "Helping Small Business in Even Bigger Ways," the bank says it will lend $10 billion to small businesses in 2010, up from $6 billion last year.
So where will that $10 billion come from? Some details on those loans will be disclosed quarterly.That will happen with lending done in JPMorgan's business banking unit, which is part of its retail financial services division.
But the rest of JPMorgan's small-business lending, which is done through its credit card and commercial banking divisions, won't be broken out. Instead, that data will be bundled into the periodic updates that JPMorgan Chase gives on the new loan program, spokesman Kelly says.
The first update appears in new ads, which say the bank extended over $800 million and hired 100 bankers in the first seven weeks of the year. It plans to hire 225 more bankers this year.
Wells Fargo hasn't yet decided how to communicate the progress of its program, says David Pope, executive vice president in the small business division of the bank.
Huntington Bancshares says it will provide annual updates of the loans it makes under its program.
Chances are most of the banks won't risk the marketing blunder of not sticking to their promises. But they have wiggle room to get to the numbers they want.
Kwak, the economics blogger, points out that banks — and sometimes even their own lending units — have different ways of defining small businesses or what loans qualify to be part of these new lending programs.
JPMorgan Chase and Wells Fargo consider small businesses to be those with annual revenues of under $20 million, but Huntington Bancshares' cutoff is $15 million. Small businesses deemed "S Corporations" for tax purposes may have a limited number of shareholders, but no limit to their size, says Robert Willens, an expert on tax and accounting issues for Wall Street clients.
Then there's the ambiguity of what could count as a new loan under these programs. If a line of credit that has expired gets renewed, is that considered a new loan or not? The answer varies from bank to bank.
These grand plans could help end the small-business lending drought. Let's see if the banks will do more to prove that they're following through on their promises.
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