Advice On Loan

A recent survey of small businesses by Lendio, a platform that matches small business borrowers with lenders, has revealed that when evaluating the cost of a loan, the total payback amount plays a crucial role in the decision-making process. While annual percentage rates (APRs) are obviously important, small business owners are equally, if not more, concerned with the total amount that they will have to repay.

In fact, if given a choice between using the APR and the total payback amount, borrowers would prefer to use the latter to decide which loan to choose.

Many online lenders do not disclose the APR and small business borrowers are often ignorant of the true cost of the loans that they are taking. This has earned the alternative lending industry a reputation for charging high-interest rates while deliberately not revealing what a loan costs. Regulatory authorities in several states, including California, New York, and Illinois have called for a greater degree of monitoring of the activities of online lenders.

Industry analysts and experts are of the view that lenders should be required to reveal APRs much in the same manner as banks and other financial institutions are mandated to inform consumers about the interest rates being levied on them.

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Large numbers of Americans are denied the opportunity to receive a high-quality education and consequently are excluded from being considered for better-paying work. Even those who have been in the workforce for several years remain stuck in dead-end jobs because of a lack of training opportunities.

Jamie Dimon, chairman and chief executive of JPMorgan Chase, the country’s largest bank, says that his company is making efforts on several fronts to give its employees the chance to move up the career ladder. The giant bank’s efforts, which have been in place for many years now, have yielded positive results. There are currently five senior regional directors within the organization who originally worked as tellers.

In 2016, JPMorgan Chase will invest over $200 million in training for new employees in the consumer banking division. During the current year, there will be a 30% increase in the number of workers who will be trained.

There is a special focus on employees in the low-wage categories. The benefits that the company’s programs have brought to its workers is evident from the fact the two out of every five bank tellers moves into a higher-paying position within five years.

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The SBA’s flagship 7(a) program is well on its way to another record year with total loan approvals at $17.47 billion through 47,583 loans in the nine months to June.  While the number of loans approved has jumped 5% compared to the same period last year, the loan amount has spiked by 8%.

The growth in volumes has been helped by the increased interest which small banks are showing in pushing SBA loans. An important reason for this development is that the SBA has introduced several measures to increase its efficiency and compress approval time-frames.

As SBA lending has become more attractive, many small banks have focused their efforts on this niche area by recruiting specialized staff. A report in the American Banker reveals that some small banks have opted for the acquisition route to step up their SBA lending business.

Brookfield-based Ridgestone Bank, an SBA lender, was recently acquired by Byline Bancorp Inc., the parent company of Byline Bank. Through this purchase, Byline Bank will get a presence in Wisconsin for the first time. Byline paid $105 million in cash and stock for the $433 million-asset Ridgestone. A critical factor in this transaction was the fact that Ridgestone operates a national lending platform that originated $165 million of 7(a) loans last year.

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As online lenders capture an ever greater share of the small business and personal lending markets, banks are realizing that these firms offer customers an experience that is far better than what their antiquated legacy systems are capable of delivering. Banks face a challenge on the payment side too, where companies like PayPal have captured a significant market share.

Unfortunately, bankers have not put enough stress on developing financial products that customers want. Instead, they have been busy with complying with regulatory requirements and meeting their own internal rules. When a small business borrower or an individual consumer approaches a bank, the interaction is dominated by what the bank needs rather than what the customer requires.

In a recent interview to the American Banker, Manolo Sanchez, CEO of BBVA Compass, said, “A lot of startups start with a mission, and everything is built on that mission. The big incumbent organizations are so complex and so huge. It’s difficult for them to do that.”

A Citi study estimates that a massive $19 billion was invested in 2015 alone in fintechs. Most of this money went to companies that focus on delivering the “last mile” of the consumer experience for small businesses and individual customers. But the real impact of these investments has yet to hit American banks.

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For the last one year, the Export-Import Bank has been unable to approve a single transaction exceeding $10 million in value. Consequently, 30 deals of a cumulative amount of more than $20 billion are stuck, awaiting the appointment of the third member of the bank’s five-person board.

Currently, the bank can only approve transactions less than $10 million each. Although these make up 98% of applications to the bank, they account for only a third of the dollar value. A number of large American companies including Boeing, G.E., Caterpillar, Westinghouse, and John Deere are unable to get export orders as the Ex-Im Bank can no longer help finance foreigners’ purchases.

Why is the government-owned Ex-Im Bank unable to fulfil its mandate to support the country’s exporters? A report in the New York Times explains that Senator Richard Shelby, Republican of Alabama and chairman of the Senate Banking Committee, stonewalled the appointment of the third member of the Ex-Im’s board. Till this appointment is made, the bank does not have the authority to approve transactions in excess of $10 million.

A statement issued by Richard Shelby’s office explains that the senator “believes that his actions are in the best interest of the American taxpayer.” The statement continues, “Nearly 99% of all American exports are financed without the Ex-Im Bank … which demonstrates that the bank is more about corporate welfare than advancing our economy.”

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