Banks vs Job Creators - Guess who wins?

The Banks!

www.cbsnews.com...

Here's what happened: Before the financial crisis, Martinez was charging around $50,000 a month for goods and shipping -- $50,000 with an $83,000 credit limit.

But then Chase Bank cut her credit limit down to around $50,000, meaning Martinez was now using nearly 100 percent of her available credit -- a red flag that caused her credit score to drop from 700 to 640, which then triggered Chase to lower her credit further to $40,000.

And people actually side with the banks today?!

"I'm in a spot where I don't understand why when I've managed my relationships appropriately and responsibly, all of a sudden the credit card companies are turning their back on me," Martinez said.

The banks won't even LET you succeed today! 60% of job creators are saying their credit terms have become WORSE. To add insult to injury...

"I have clients who have orders in hand," said Landis, "they could hire employees back immediately, if they had the cash to bring them back."

"I don't think the credit card companies have the data or the understanding to realize how significant their credit is for job creation."

Martinez added: "I'm not spending my money buying plasma TV's and going on vacation. I'm spending my money to grow my business and create jobs."

Really makes you wonder who's side "The 1%" are on... (psst - It's clearly NOT America's!)

reply to post by negativenihil


I feel for her, and this is precisely why I have not had a credit card since 88. My credit score frankly sucks because I do cash only transactions.

It's hard but doable.

reply to post by TDawgRex


You simply can't run a business today without credit.

I mean really... Sure you can pull it off for personal finance, but not in the modern world of business.

Might makes right, sadly depending on your view point.

reply to post by negativenihil


How about the Laws that stymy small business owners?

Those are not part of the problem?

Or the Laws that favor the banks?

If the Laws were changed,maybe businesses wouldn't have to borrow...........

I'm not sure there really is anyone of sound mind backing the big banks. If they are they're either sorely misled or being paid by the big banking industry.

It is my opinion that if banks start to advertise on TV and Radio...Watch out! because something bad is coming around the corner. Every time I've had to walk in to a Wells Fargo or B of A I get angry watching their ridiculous propaganda videos on how much good they're doing for the country and your neighborhood and your little puppy too.

It's enough to make you wanna storm one....But I'll settle for bringing back a better version of Glass-Steagall. I would love to see the separation of loan services and investment vehicle services. I want to see tight reserve requirements and at LEAST 20% loan to value down payment requirements and ONLY for people who have the credit and income to afford it.

This idea that credit should just be shove out the door of a bank no matter who is asking for it needs to stop. And the games that are being played with interest rates vs. loan requirements needs to stop as well.

Also handcuffs.

Here's the other side of the story. First, Chase and these other big banks lowered her credit limit for a legitimate reason. The owner isn't telling the whole story - Something in her credit profile triggered what happened here - Either late payments on her mortgage, perhaps tax liens, collection items, judgments against the business, etc. There could be a whole host of legitimate credit reasons as to why the credit limit was capped.

In these cases, 95% of the time the banks are doing what they should be doing - Protecting themselves from risky borrowers showing heightened signs of distress. The fact that this business owner hasn't got a foggy clue as to why her credit limits were capped says a lot about her business acumen, or lack thereof.

Most of these business credit lines are unsecured, which means that there is no underlying collateral backing the Line of Credit. This means that not only is this a very risky loan for the bank, but there is no recourse in the event of default. The Personal Guarantee of the business owner is, essentially, worthless.

Banks today are charging-off as much as 20% or more of these Lines of Credit the past few years. That means that for every 100 clients that have Business Line of Credit, 20 of these will go into default. These are huge losses for the banks.

Many of these small businesses are notorious for misusing their Business Line of Credit for personal expenses, vacations, and "entertainment".

Many of these Lines of Credit are also not revolving as they should - meaning the Lines of Credit are at their maximum credit limit, and have never had the principal reduced as it should be. It's akin to taking out a $10,000 credit card, maxxing the credit card out on day one for a shopping spree, and paying "interest only" for several years, never reducing the principal balance.

Back in the hey day, you could get a $100,000 unsecured Line of Credit from one of these "fast-growing" reckless banks, with little more than a signature and a basic credit report check on the owner of the business. Those days, thank goodness, are over, and businesses actually have to show that they have the cash flow, collateral, good management, etc. to the bank in order to obtain a Line of Credit facility.

Banks now require a full financial package and are much more realistic and conservative in their lending practices, having been burned by businesses that have gone in default these past few years.

This is a rude wake-up call to most business owners who are used to easy, liberal credit terms with no due diligence. Those days are long over.

reply to post by sonnny1


Well, I don't see borrowing as a bad thing. I see the lack of loan to value requirements(in terms of down payments) and income requirements being part of the problem. I see banks who are allowed to use depositor money and loan paper as a form of investment vehicle they can gamble with causing harm to the borrower whether the borrower is doing something wrong or not.

It's this kind of flagrant disregard for basic financial responsibility that pisses me off.

reply to post by CookieMonster09


I disagree. While banks are tightening up lines of credit now, there is NOTHING, not even in the 2000 pages of Dodd/Frank that prevents them from gambling with your mortgage, or lending well beyond the reasonably accepted leverage ratio of 10:1, or keeping with sound reserve requirements, or even lending to qualified borrowers.

There's no "or else" in anything they are allowed to do.

I disagree. While banks are tightening up lines of credit now, there is NOTHING, not even in the 2000 pages of Dodd/Frank that prevents them from gambling with your mortgage, or lending well beyond the reasonably accepted leverage ratio of 10:1, or keeping with sound reserve requirements, or even lending to qualified borrowers.

Self-preservation. If banks are reckless, they get taken over by the FDIC and get gobbled up by a larger, well-capitalized bank. Consumers don't lose - Taxpayers don't lose. FDIC insurance is paid by the banks themselves, not taxpayers.

To a certain degree, you are correct. Nothing prevents a stupid, incompetent bank from giving away the house. Banks that give away too many freebies, and play loosey--goosey with their lending criteria, are soon out of business.

That's one of the reason why the mega-banks are so profitable - Because they understand their cost structure and charge fees and interest commensurate with their cost structure. Smaller banks give away everything for free, which is why they are generally unprofitable, unsustainable, and fail far more often. Mega-banks cannot compete against the stupidity of a smaller bank giving away freebies.

The mega-banks are sitting on hundreds of billions of dollars that they could lend to commercial borrowers, but they cannot find enough qualified applicants to which to lend the money. Talk to any business owner who will tell you that the rules for lending are much tighter than they were just a few years ago. It's mighty difficult to get a loan approved nowadays, whether it be a commercial or residential mortgage loan. Banks are still lending, but the criteria is very conservative.

If not enough people sign up for military duty, the country always seems to hit a recession. In the wake of the big war was a recession, during vietnam a recession made military service more appealing and its happening again today, DESPITE the fact that war is a boost to the economy, not a hinderance. Its by design, buisnesses are shut off.

reply to post by CookieMonster09


With banks you have to FORCE them to be conservative with their lending practices. But as I pointed out, lending isn't the only problem and it wasn't entirely what lead to the financial crisis in '08.

When times are bad, sure they're going to tighten up and only lend to people they can be reasonably sure are going to pay back the loan. In good times they are going to do what they did throughout the last decade.

Banks aren't like other industries. They're a wholly different animal entirely. One of the only industries I support tight controls on and for a reason.