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Strict Examinations Hold Back Loans To Small Businesses

Written by Ken Gaebler
Published: 3/29/2010

Small banks say that government examiners are making it difficult to lend to small businesses.

Tough regulations are making it difficult for small banks to lend, according to a report from USA Today. That could be difficult news for small businesses owners to hear.

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Bank executives around the country claim that government field examiners are making their reviews more strict. The result, they say, is a process that discourages sound loans.

The banks believe that examiners are downgrading the ratings of performing loans because the collateral - most times commercial real estate - has fallen in value. A borrower located in an economically distressed state can also result in a lower rating.

Cam Fine, CEO of Independent Community Bankers of America, told the paper that the current bank examination climate "is perhaps the most severe in two generations at least." He compared it to a "reign of terror, particularly on the community banks," which often serve small firms.

Speaking publicly, regulation officials have said their examiners are generally fair, but have acknowledged more vigilance recently.

Despite the difficulty small businesses are facing when it comes to securing loans, sales could be an even bigger problem.

A report from the National Federation of Independent Businesses indicates that 51 percent of small employers found slow or declining sales to be their principal immediate economic problem.

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