The Federal Deposit Insurance Corporation is best known as the independent agency that guarantees the safety of deposits in member banks.
The Federal Deposit Insurance Corporation is best known as the independent agency that guarantees the safety of deposits in member banks. However, Sandra Thompson, the agency’s Director for Division of Supervision and Consumer Protection, points out that the FDIC has several programs in place designed to help small businesses.
Thompson leads the FDIC’s supervision of more than 5,300 state non-member banks as well as its back-up examination activities for all federally insured depository institutions. She oversees a workforce of more than 2,700 employees deployed in six regional offices and 84 field offices nationwide. BLACK ENTERPRISE spoke with Thompson about those small business programs and the efforts the FDIC puts into helping community banks – the institutions that handle the bulk of small business lending in the US. Here’s what she had to say:
BLACK ENTERPRISE: So what are some of the things the FDIC has in place designed to help small businesses.
Sandra Thompson: We have a financial literacy program called Money Smart and that provides financial literacy for adults, young adults, etcetera. And we’ve just released a Money Smart for small businesses it’s an instructor led curriculum that was developed jointly by the FDIC and the SBA. We’ve got all kinds of information on like financial management, record-keeping, banking services that are available for small businesses. Credit reporting, risk management, insurance, tax planning, selling a small business, succession planning. There’s just a host of information that we have in these modules for entities that are interested in starting a small business.
We also earlier this year held a small business forum on Overcoming the Obstacles to Small Business Lending and we wanted to figure out ways to stimulate small business lending to help recharge the economy. And as a part of that initiative we rolled out a hotline for small businesses to contact in the event that they had difficulty obtaining credit and we wanted to get a better understanding on those issues.
The number one problem with small businesses these days is getting that financing that they need, that capital. You mentioned that you’re trying to address the issue, so what are some of the potential solutions?
Thompson: Well you’ll recall that the Treasury Department had a program that placed capital in financial institutions, it was a small business lending fund and that took place last year. And that initiative placed over $4 billion dollars of capital in community banks so that they could make loans on Main Street to help small businesses grow and also to create jobs. We also worked with the Small Business Administration on different issues to encourage banks to participate in their various programs. But I’ll tell you understanding how small businesses operate, how to present cash flows, and how to present their balance sheet and their business plan, in a way that banks would understand, a lot of that is in our Money Smart for small business module. Just understanding the requirements that banks need so that they can make assessments to underwrite prudent loans I think is really important. So if you have all the information, getting it up front and putting it into a format that the banks can understand and use to make good lending decisions, I think is very helpful.
So if I’m an entrepreneur and I have gone to a few banks and I’m getting declined but I still believe in my business model, I still believe in my financial projections. What recourse do I have?
Thompson: Well I think one thing I would want to know is why I was getting rejected? I mean what is basis? Is it my business plan? Is it my financial projection? I mean do I have the right information? Or do I have the information that banks need to assess whether I’m going to be a good credit or a good borrower? Because those are the things that they have to take into consideration when they make the decision to grant a loan now. Am I a good credit? I think really looking at the business plan, really looking at the projection. Am I being realistic in my projections? And that’s why it leads you again to this Money Smart for small businesses curriculum where we set forth a prototype for some of the things that banks look at when they’re evaluating small business loans. And I just think that the information you provide is so important, the context is important and have a realistic financial projection is important as well.
Many entrepreneurs say the banks just aren’t lending. They’re going through every possible avenue with the understanding or the belief that the banks – community or otherwise – just aren’t lending these days.
Thompson: Well again what I would encourage people to do is take a look at what information banks need to assess whether or not they’re going to approve a loan. Whether the entity is going to be a good credit? And there’s a lot of work that can be done on the front end, financial management. How are you going to keep your books and records? What kind of record-keeping are you doing? What kinds of banking services are available for small business before you start your business? Know what are your projections? What’s your income? What are your expenses? What are you planning for? Where are your reserves for unanticipated issues that might come up?
There’s a lot of planning that goes into just opening and operating and establishing a small business and so there’s a lot of work that can be done up front. And again, I would encourage anyone who wants to start a small business or who has a small business to really go into detail upfront and understand the requirements that banks need to make a favorable credit decision. What are the risk management issues? Is your business plan and your operating plan reasonable? Now does it make sense? Are your cash flow projections reasonable?
How would you sort of describe the state of these community banks now? Quite a few went by the wayside of the past few years and the ones that are left they still have their challenges.
Thompson: Yeah well the fact of the matter is, all of the financial indicators are moving in the right direction. The number of problem institutions has decreased. The number of failed banks has decreased. Last year in total there were 92 bank failures. The year before that in 2010 we peaked at 157 and the year before that 2009 it was 140 and 2008 there were 25. So 2008 there were 25 bank failures, 2009 there were 140, 2010 157, 2011 there were 92 and so far this year there’s been 38 bank failures.
So the number of bank failures is down, the number of institutions that are on our problem bank list are down. And the number of non-delinquent loans is, non-current loans I should say, the number of non-current loans is coming down. All of the financial indicators are moving in the right direction and so we think that the economy is fragile because a lot of it depends on employment.
You know people can pay their loans back if they have jobs, if they don’t have jobs they can’t make payments on their loans. And so the bank’s balance sheets are improving, earnings for the industry are up. And so the financial indicators are moving in the right direction but we’re not out of the woods yet. It’s a fragile economy and we just are taking it one day at a time.
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