Here's how Fed rate hike would pinch borrowers

Category: Small Business Borrowing
Published: Wednesday, 15 July 2015
Written by Admin

For many Americans, debt is affordable and makes sense at these low rates. But nows the time for borrowers to look at what they owe and figure out how much their interest costs will rise if the Fed begins to lift rates, said Greg McBride, chief analyst at rate research firm Bankrate Inc. Its far better to plan than to face sudden payment shock.

The best strategy in the face of higher rates is to pay down debt, if possible. Barring that, there are other ways to make rising rates easier to bear.

Heres a look at the most common consumer and small-business borrowing tools and what to expect once the Fed begins to lift rates:

US small-business borrowing hit record in April: PayNet

Category: Small Business Borrowing
Published: Tuesday, 09 June 2015
Written by Admin

The Thomson Reuters/PayNet Small Business Lending Index rose to 141.5 from an upwardly revised March reading of 130.5.

From a year earlier, the index was up 13 percent. At the same time, the delinquency rate on loans more than 30 days past due fell in April, to 1.52 percent, suggesting the increased borrowing has not come at the expense of financial health.

It's really firming up, PayNet founder Bill Phelan said of the trend in borrowing by companies in retail, accommodations, transportation, construction, health care, professional services and other industries. It will bode well for GDP for the rest of the year.

The index has historically tracked ahead of US gross domestic product growth by two to five months.

US GDP fell at a 0.7 percent annual rate last quarter. Data since then has been mixed.

US consumer spending unexpectedly stalled in April, data released Monday showed. But manufacturing activity picked up in May for the first time in seven months and construction spending surged in April to a near 6-1/2-year high.

Even more critical than the actual data, perhaps, is how Fed officials interpret it as they prepare for a policy-setting meeting in about two weeks. There, views are nearly as mixed as the underlying data.

Boston Fed President Eric Rosengren, for instance, signaled Monday he has begun to worry about the absence of a snapback in economic growth.

San Francisco Fed President John Williams, by contrast, has stuck to his view that the slowdown is likely temporary and indeed the first-quarter economy likely will turn out not to have been as weak as currently estimated.

PayNet collects real-time loan information such as originations and delinquencies from more than 250 leading US lenders.

(Reporting by Ann Saphir; Editing by Chizu Nomiyama)

KeyBank branch in Tacoma's Hilltop neighborhood will close June 12

Category: Small Business Borrowing
Published: Thursday, 02 April 2015
Written by Admin

Depositors and other clients of KeyBank on Tacoma#x2019;s Hilltop have been notified that their branch will close and accounts will be consolidated at the Tacoma Main office.

KeyBank spokeswoman Drez Jennings said by email that the branch had not been achieving adequate business.

#x201C;We are aware of and understand the community concern over this decision,#x201D; she stated. #x201C;This decision is the result of a long and extensive review of how the community makes use of the (branch). We also took into account there are several nearby branch offices the community can use.#x201D;

She said data have shown #x201C;an ongoing decline in customer use#x201D; at the Hilltop branch.

She noted that consumer deposits declined by 25 percent while consumer and small-business borrowing each dropped by 73 percent between 2012 and 2014.

#x201C;While customers are making less use of branches generally, the decline in (this branch) activity is higher that we see across KeyBank#x2019;s footprint,#x201D; Jennings said.

Jennings wrote that other KeyBank branches are available downtown at the 1101 Pacific Ave. Tacoma Main office at 3501 S. 19th St. and in the Proctor District at 3917 N. 26th St.

KeyBank spokeswoman Anne Foster confirmed earlier this week that KeyBank#x2019;s philanthropic efforts would continue in Hilltop. In 2014, she said, the bank donated $116,000 #x201C;to organizations located in, or primarily providing services to#x201D; the neighborhood.

Organizations benefiting from the KeyBank programs included, in part, Associated Ministries, Community Health Care, Centro Latino Ser, Tacoma Goodwill, Tacoma Urban League, Nativity House and Life Christian Academy.

The Hilltop facility will close June 12. Employees at the branch have been offered positions at other KeyBank locations.

CR Roberts: 253-597-8535 This email address is being protected from spambots. You need JavaScript enabled to view it.

Replace the SBA's Outdated 7(a) Loan Program

Category: Small Business Borrowing
Published: Tuesday, 31 March 2015
Written by Admin

The US Small Business Administration's signature effort to provide small business owners with access to capital - the 7(a) loan program - should be replaced with a new model that better fits the needs of today's small business owners. Established in 1953, the 7(a) program was designed to overcome the "market failure" that results from the difficulty and cost of gathering information about small companies' creditworthiness. By offering lenders a federal guarantee of repayment on loans made to small businesses unable to obtain credit under acceptable terms from other sources, the SBA induced bankers to offer loans to businesses that were otherwise denied financing.

While economic theory suggested the value of the 7(a) loan program at the time it was developed, research has shown that the extent of small business credit rationing is much smaller than theoretical economic models predicted. As a result, the need for a government program to ensure that private markets provide capital to small businesses turns out to have been overstated.

Related: Is Declining Business Failure Holding Back Entrepreneurship?

Moreover, advances in technology have reduced the market failure that justifies the program. In the 1950s, lenders did not use credit scoring or computer algorithms to gather and analyze data to predict the probability that small businesses would repay their loans. However, today many financiers use these tools to assess small business credit risk. With more information about business owners' likelihood of repaying loans, private markets are less likely to fail to provide small businesses with adequate capital than they were when Eisenhower was president.

The 7(a) loan program works through banks - a shrinking source of small business credit. Bank loan-based programs are less effective at meeting small business owners' capital needs today than they were when term loans from financial institutions were the primary source of small business credit. Over the years, small business owners have diversified their sources of capital, and bank loans currently comprise a minority of small business borrowing.  A 2011 survey of a representative sample of 850 small businesses, conducted on behalf of the National Federation of Independent Business by the Gallup Organization, showed that 88 percent of companies either had credit outstanding or immediate access to credit, but only 29 percent had a bank loan. Federal Deposit Insurance Corporation data show that the small loan (less than $1 million) share of all domestic commercial and industrial loans declined from 33 percent to 21 percent between 1995 and 2014.

Related: Finding a Good Small Business Job is Getting Harder

These changes mean that the 7(a) program plays a very small role in ensuring that US small businesses have access to credit. Survey of Business Owners data reveal that only 0.7 percent of businesses used any "government-guaranteed loan to start or acquire a business, and only 0.3 percent used a "government-guaranteed business loan to finance expansion."  Data from the Federal Reserve show that SBA-guaranteed loans accounted for only 0.4 percent of the commercial and industrial loans made in the United States in 2014. Statistics from the SBA and the Census Bureau reveal that 7(a) loans went to only 0.2 percent of the small businesses in this country.  

If the 7(a) didn't have a cost, none of this would matter. However, taxpayers must pay up when the SBA fails to price loan guarantees correctly or when economic contractions cause more-than-expected numbers of small businesses to fail.

The SBA could fix these problems by replacing its 1950s-era loan scheme with a 21st Century model. By redesigning its signature loan program to address the problems faced by today's small business owners (rather than those of their grandparents), the agency would make it possible for more small companies to obtain credit at a lower cost to taxpayers.

Related: Greater National Competitiveness Doesnt Lead to More Entrepreneurship