B of A cuts credit lines to some small businesses
Bank of America is asking a number of small-business to pay off their loans, or refinance at high interest rates.
Steve Chiotakis: In an effort to raise money and cut its risk, Bank of America is severing credit lines to some small businesses. The Los Angeles Times reports the bank is demanding some of their customers pay in full or refinance their debt with higher interest rates. Now, small business advocates say because of the size of BofA, that could really hurt the business and jobs sector in this country.
Ken Thomas is a banking consultant and economist. He joins us now from South Florida with his take on all this. Hey Ken.
Ken Thomas: How you doing?
Chiotakis: I'm doing well. You know, I'm curious -- how are small businesses faring in this economy? I mean, it just seems like they're getting the short end of the stick.
Thomas: Unfortunately, we sometimes get mixed signals from the banks. Based upon what we're seeing, it looks like they're hurting small businesses. But on the other hand, they've announced that they've hired over 1,000 new small business bankers, and they've released information showing that the amount of new credit to small businesses is up like 35 percent -- they're lending more. So we're getting mixed signals, and it's confusing.
Chiotakis: I want to turn to the number of businesses that are trying to survive on these credit lines. Is that up or down these days?
Thomas: It's really going up. As we see, a lot of businesses reaching toward different sources of credit because banks are under increased scrutiny by their regulators -- especially the big banks like Bank of America. I mean, they literally have hundreds of regulators on top of them telling them to tighten up on credit, and they're trying to expand credit, but the regulators are telling them to tighten up. So again, they're under pressure both ways.
Chiotakis: Why are the regulators telling them to tighten up -- I thought the whole deal with TARP was to get them to lend out more money. But they've got regulators telling them to tighten up?
Thomas: We see the information coming out of Washington says, oh yeah, we want banks to lend, we want to expand the economy, more credit. But then the regulators go into the banks and they look at these loans and they say: some of these questionable lines we want you to tighten up on, some of these real estate credits we want you to mark down. So they're getting different signals -- banks are under a lot of pressure right now to tighten up on their lending when in fact they should be doing the opposite.
Chiotakis: Is this a trend, do you think, Ken? I mean, are other banks going to follow on this?
Thomas: I think other banks are very aggressively going after small business customers, but they want the best customers. There's always going to be those gray area customers who max out their lines, and those are not the customers all the banks want -- they want the premier customers. And that's what's happening here. Bank of America is under pressure, and they're tightening up on some of those customers who have maxed out their lines.
Chiotakis: Banking consultant Ken Thomas joining us this morning. Ken, thanks.
Thomas: Absolutely, have a good day.