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Why Banks Aren't Lending: The Borrowers' Perspective

Three weeks ago the Fed told us that banks were not lending to small and medium-sized business because demand was weak, among other reasons, according to their quarterly survey of lending. Today I came across a survey from the borrower side: it doesn't quite refute what the Fed had to say, but it does remind us of how difficult the borrowing environment is. But still -- didn't the U.S. taxpayer advance the banks billions and billions to keep the loans flowing?

Greenwich Associates is a firm of researchers and consultants, located in Connecticut, that asks and answers all sorts of questions about Wall Street and corporate finance. Today they sent me the results of a survey of 560 small and medium sized companies that asked how they were getting along with their banks. (Sorry, no link is available.) Some highlights:

  • 58 percent of small businesses and mid-sized companies that negotiated a new loan or refinanced an existing one reported it's harder to borrow money today than it was a year ago. (However, conditions have improved since the last survey, in September 2009.)
  • 36 percent said it was "much harder to borrow."
  • About half said that banks' being tight with a buck has hurt their business.
Half of the business owners say they understand that times are tough, and recognize that banks have to be more choosy, but find it unacceptable that banks are taking so long to respond to their requests (compared to the week or so many of them expect). That sounds like poor salesmanship to me.

No surprise, then, that about a quarter of these customers are losing trust in their banks.

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