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B of A tightens credit to some small businesses

Mitchell Hartman Jan 3, 2012

Kai Ryssdal: From the pages of the Los Angeles Times today comes this story: Bank of America is tightening up on credit for some of its small-business borrowers. B of A insists the number of companies actually affected is small, but the news is a good window into a problem facing a lot of small-business owners: How to get the cash they need as banks get pickier about who they lend to and how much they lend at all.

Marketplace’s Mitchell Hartman reports.

Mitchell Hartman: B of A is one of the country’s top lenders, with more than a million small-business clients.

Spokesman Jefferson George insists the bank isn’t cutting back on credit across-the-board. In fact, its new business loans are up 30 percent. What B of A is doing, he says, is changing the terms for some older loans.

Jefferson George: What we’ve done is put in some standard practices for a very very very small percentage of our customers—such as a maturity date, and an annual renewal process.

That means some small business-owners may have to pay their loans off right away, face higher interest rates, or lose their lines of credit.

S&P banking analyst Erik Oja says this makes sense — for B of A.

Erik Oja: Bank of America is under severe pressure from its regulators to raise capital now and to reduce risk. And they will cut down lines of credit that have any risk.

But it’s not just B of A doing this, says Bob Coleman. He publishes a report on small-business lending. He says all banks are under pressure to improve the quality of their loans.

Bob Coleman: Where the borrower may be up to the maximum, the regulators are actually then going to that bank and forcing them to write off a portion of that loan.

Cookie Driscoll has a one-woman business in Pennsylvania selling promotional gifts and equestrian products. She lost her line of credit with PNC Bank last year and had to pay the remaining balance of $6,000 in one lump sum.

Cookie Driscoll: So I ended up borrowing from a family member to be able to pay that off.

Hartman: So, bank of family — better interest rate?

Driscoll: No, I try to run this like a business.

So far, Driscoll hasn’t looked for a new line of credit. She says she’s skittish of banks right now.

I’m Mitchell Hartman for Marketplace.

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