Los Angeles will be tracking bank’s investments, specifically who they are lending to and where geographically they are located.  They will also be looking for those banks who are modifying mortgages.  While the national unemployment rate is 9.7%, Los Angeles’ is 13.7%.  The idea is that the more people that will be able to hold on to their homes, the more that will stay employed, and the better businesses will perform.

The city’s new banking legislation will require all city banks to submit a yearly investment report, going beyond the already existing 1977 legislation, the federal Community Reinvestment Act.  “We have a lot of power with our investments,” says Alarcon, who represents part of the San Fernando Valley. “We want the banks to know that the health of the community is more important than a low interest rate.”

The American Bank Association acknowledges what the Los Angeles city council is doing, but says that there will have to be some sort of balance  between remaining competitive and turning a profit, and helping the community.  Uneconomically sound moves won’t help anyone.  Similiar programs have been considered in Massachusetts, Maryland, Pennsylvania, and Minnesota.

For the original AP Article

The Obama administration extended an additional $1.8 billion in SBA backed small business loans. The initial program was for $750 million and helped stimulate small businesses by guaranteeing 90% of the funding and by waiving application fees.  The stimulus was depleted by November 23rd.  In December the government extended another $125 million which lasted until February.

New applications will resume on March 10th, whereby already existing applicants in the SBA queue will be approved and then subsequently the new applications

The money will come from the $700 billion in payback from the large bank bailouts. In addition The President also is proposing to extend a $38 billion tax break to small businesses, allowing them to write off equipment and investments more quickly.
The President blamed much of the economic recession on corruption in Wall Street and in a speech that referenced letters from various small business owners from around the country, Mr. Obama reassured small businesses that the rest of the government’s recovery planned would be geared towards helping them rather than large businesses and banks.

Many small businesses have closed in the global economic crisis, and the ones left standing have found it nearly impossible to receive funding from banks. However, many skeptics, including Jim Blasingame of The Small Business Advocate Show, are claiming that banks don’t lack the money to lend to businesses, but rather businesses are not in a position to receive money. In addition, some are asking what kinds of strings are attached to the money.

The President also proposed a tax initiative for small businesses who hire new employees or raise wages. He also supported a plan that would eliminate capital gains tax on small business investment. “The idea to make hiring easier for small businesses is a good one,” the National Small Business Association said in a statement last night. “Unfortunately, when polling our members, few believe that a hiring tax credit—which would likely be temporary—would be incentive enough to take on new employees, particularly given costly benefits. In many cases, people who take advantage of this tax credit would have hired the new employee regardless.”

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Taxpayers and small businesses owners are frustrated as billions of dollars were pumped into the financial system in order to save large banks, but the situation of small businesses has not gotten better as they have not seen much relief and banks continue to tighten their lending.

The banking system has developed stricter underwriting criteria for loans, as they want to cut out bad debt and invest in businesses that have a high chance of paying back the loan. There is currently legislation passing through Congress that would make it more expensive for banks to operate.

“You’ve got to really give that money back to the source that’s going to provide the most amount of jobs, the most amount of economic stimulus for the economy,” Shallal said. “That’s small businesses.”

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“Bank of America is determined to do our part to help the economy grow next year and reduce unemployment by making every good loan we can make,” Mr. Lewis said in a statement.

Mr. Lewis acknowledged the large role that small businesses play in the American economy and reaffirmed Bank of America’s commitment to supporting these businesses. Yet Bank of America’s lending dropped 90% in SBA backed loans this fiscal year to 308 totally $17.6 million compared to last year’s 3,354 SBA backed loans totally a $121.4 million. While SBA loans online compromise a small percentage of total loans to small businesses, it still is a strong indicator of market trends.

Bank of America experienced a 16% default rate on small businesses loans, as Ken Lewis was quoted referring to this bad debt – a “damned disaster.” That’s over $2 billion in bad debt in comparison to a 1% default rate with commercial loans to large companies.
Bank of America is the second largest small business loans bank, next to Wells Fargo, and according to the treasury department, ended September with close to $42 billion in outstanding small business loans.

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Few banks have signed up for extra money from the government which would be used to aid small businesses and a $15 billion program to buy securitized small businesses loans announced in March still has not started.
Treasury secretary Geithner has come under increasing scrutiny as he has become known more as a secretary of Wall Street rather than a secretary of the treasury for the public. According to a current Bloomberg Poll, 33% of the public viewed him unfavorable compared to 25% who viewed him favorably.

Obama blasted Wall Street and banks over the past weekend, asserting that lenders have a responsibility now that they are back on their feet to help rebuild the economy.  Small businesses have suffered the most in the recent economic recessions as banks have tightened their credit lines despite the fact that small businesses employ more than half the nation and have comprised more than 60% of new employment over the past 15 years.  Small businesses have higher expenses than large businesses and rely on 90% of their working capital from banks in comparison to large businesses who rely on 30% of their working capital from banks.

Many small businesses have searched for other methods of private funding like merchant cash advances and equipment loans.  While these loans are generally more expensive than traditional bank loans, with the current market, these businesses may not have much of a choice.

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On Monday, Citigroup announced that it will sell $20.5 billion in stock and debt in order to repay the TARP loan. Yet the government still owns a large chunk of the stock, 34%, and plans to sell an additional $5 billion of its holdings as the bank repays TARP, and it will continue to own 23% for at least another six months to a year.

While Citigroup Inc. stock, “C,” fell 8% on Monday after the widely expected news was released, in the long run, the repayment of TARP money is good for stock holders as the bank bought its freedom from the government. The depreciation in stock was due to the bank’s need to offset the loss of government guarantees to block bad securities connected to defaulted mortgages, and the bank’s decision to raise $20 billion in trust securities that the government owns in TARP money.

There is still a long way to go for Citigroup Inc., but perhaps we are finally seeing the beginning of the recuperation of the financial sector as Bank of America last week announced it is repaying its TARP loan by raising $19.3 billion to repay $45 billion in government TARP money.

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The Federal Reserve Commission is responsible for insuring and enforcing regulations in the United States banking system.  Starting in 2007, the banking system entered into difficult financial times, and in 2008, the increasing global economic recession has caused immense strain on the banking systems, and many banks have suffered great losses, and have many have failed.

While there has been economic growth in the third quarter as consumers have begun to spend and there has been an increase in residential real estate, unemployment has risen to 10.2%.  There is an increase in delinquency on residential and commercial real estate loans, and an increase in loan defaults from small businesses.

Small businesses tend to be more effected by these difficult economic times and they rely on banks for 90% of their funding while large businesses only rely on banks for 30% of their financing.  27 million small businesses employ about half the workforce in America, and combined they owe over $1 trillion.  The availability and demand for bank loans is down as banks continue to tighten their lending.  Housing adjustments suggest that we can expect continued foreclosures and mortgage loss are expected to remain high.  Banks continue to face difficulties as the value of commercial properties has declined.

The associate director concluded that the current economic environment remains under stress and it will take time before the financial markets to fully recover.

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Businesses must show that they are experiencing difficulty in cash flow, that sales are down, and that they are having difficulty paying back vendors. Merchants must also write a business plan of how they plan to use the money so that it benefits the business and how they will be able to turn a profit from the loan. An additional requirement to receive the loan is that businesses must be operational for at least two years, and have been profitable for at least one of those years.

While many national banks have declined to participate in the program, the ARC loan is supposed to expire in September 2010, or until the funds run out.

While the ARC loan is a nice stimulus for a small percentage of businesses that actually do qualify, for the others it is of no help. There are three major problems with the stimulus:
1) Merchants can only qualify up to a maximum of $30,000.
2) The ARC loan will only expire after September 2010 or after the $225 million has been distributed.
3) Not many banks are offering the loan and it is difficult to actually qualify for it.

Merchant cash advances can offer businesses up to $500,000, and the criteria for qualifying for them are extremely reasonable. Most businesses as long as they are current with their landlord can receive at least some sort of funding. Even small businesses with serious delinquent accounts and extremely poor credit can receive funding as long as they are processing Visa or MasterCard credit cards.

To view the original article from Entrepreneur.com click here!

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Small businesses in Michigan are lobbying the Federal Government for more funding as the current situation of tight restrictions on business loans is hindering business expansion. More and more, the merchant cash advance industry has seen a rise in “loans” to the automotive repair industry as these small businesses have been unsuccessful in receiving loans from their local banks.

A merchant cash advance is not like a traditional loan but rather a purchase and sales agreement. The private lender purchases the merchant’s credit card receivables at a discounted rate. This allows high risk merchants to receive substantial amounts of funding for their businesses without any of it appearing on their credit report. There is no collateral involved – the merchant cash advance lender cannot collect if the merchant goes out of businesses.

To read the original article from Publicbroadcasting.net click here!

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