Local banker Larry Barbour, president and chief executive of North State Bank in Raleigh, is quoted today in a front page Wall Street Journal article about the difficulties small businesses are having getting access to credit.
Barbour raises an issue that many community banks are facing these days: Tough lending standards being enforced by federal regulators.
"For the first time in my 37 years in banking, we're having to say to our clients that we're not sure this will pass muster with the regulators," Barbour told the paper.
There have been a number of articles lately exploring this problem of small business credit, which could severely hurt any potential economic recovery.
Small businesses need access to credit to expand their businesses and hire more people.
If the credit markets don't improve then companies won't be in a position to make the kind of investments that the economy needs to replace all the jobs that have been lost over the last two years.
But improving access to credit will require the government and the banks to deal once and for all with loans made during the boom years.
Many banks, particularly community banks, continue to carry lots of real estate loans on their books that have the potential to decline further in value in the coming months.
If a bank writes down these loans now, they could bankrupt their borrowers and leave the bank itself in a bad position. At the same time, if a bank continues to carry a loan where the value of the underlining property has dropped precipitously its health remains in jeopardy.
Regulators, worried about banks heath, are scrutinizing their loan portfolios like never before.
Making this situation even worse is the fact that the recession has damaged many small businesses financial situation, making them less credit-worthy in the eyes of lenders.
As the WSJ article notes, we've gone from a time when credit was cheap and easy to get to a time when it is so difficult to get as to be potentially damaging to an economic recovery.
For a struggling small business, that drastic change can be particularly jarring.
Business reporter David Bracken came to the N&O in 2004. He covers commercial and residential real estate. Contact David at 919-829-4548 or
Comments
responsibility of the state
Mon, 03/15/2010 - 14:08 — dongleis very difficult for small businesses, so the government must also be adjusted to reduce the difficulties for the enterprises to the economy without the heavy drop in the financial crisis and the increase unemployment.