An observation on "job creators" fallacy

[s-cubed]

In the late 80's early 90's I worked for a large corporation. One of the interesting things I learned was that they were not interested in any business plan that was not a sure thing for at least $20 million/year. I suspect the same mentality holds today. And I suspect the same mentality holds at the big banks who aren't interested in loaning to small fry. They're rather finance a merger than reduces competition and jobs.

Now contrast that with Joe or Joan Blow who has an idea that might make a good business. He or she doesn't have such a barrier to starting a business. My father, who eventually had a company hiring 50 workers, wanted to work for himself and feed his family, not become a multimillionaire.

My guess is that the Move your Money campaign will do a lot to help the little businesses who need to manage their cash flow and invest in their tiny businesses.

What do you think?

[salin]

1. this article suggests a similar premise.... small businesses moving their money:

http://www.huffingtonpost.com/2011/11/04/small-businesses-switching-from-big-banks-to-local-banks_n_1070547.html?ref=business&ir=Business

Even in a tight credit market, David Meinert didn't think he'd have a problem getting funding from his bank. He was a model entrepreneur, with good credit and a profitable business earning $2 million in revenue. But when he applied for a relatively small $50,000 line of credit from Chase in late 2010, he got denied in 12 hours, with no explanation. "It was insulting and made no sense, even to the banker. And there was no one to even talk to about it," Meinert says. "It's frustrating that banks are getting billions of dollars in taxpayers' money and they're sitting on that money and not lending it to small businesses. If you're making less than $10 million, they don't care about you."

Meinert decided to turn his frustration into action. After 12 years with Bank of America and a year with Chase, he's switching all his business accounts to Seattle Bank. Like many small-business owners, he initially joined the big banks for no particular reason other than that they were conveniently located. Bank of America was the closest bank to his office and Chase was the closest bank to his office that wasn't Bank of America. He spent years enduring all the subsequent irritations -- outdated online banking systems, the revolving door of bank employees, increasing fees, a sense that he was more a number than a name -- with little more than an eye roll. But the credit line denial was a breaking point.

more at link/story

[Tennessee Gal]

2. I think you may be right. I certainly hope so.

[customerserviceguy]

3. It depends

Small community banks want safe investments, too. They might help a Mom and Pop business that has been around for awhile, and needs some expansion cash, but I don't think they're going to back too many new ventures, especially from first-timers in a business.

However, once a recovery gets started, that attitude could well change.

[applegrove]

4. I agree that the big banks are into sexy practices rather than the community.

[SoDesuKa]

5. Hurdle Rate of Return

For a PowerPoint presentation on the cost of capital, see http://clem.mscd.edu/~mayest/FIN3300/Files/ch11.ppt#256,1,The Cost of Capital

[taught_me_patience]

6. Completely disagree

The big three (Chase, BofA, and Wells Fargo) have all offered 100% financing startup business loan for my family in the 150-200k range. The local credit union laughed laughed in my face. The loan terms and rates are phenomenal.

[quaker bill]

7. I don't have your experience

Credit Unions generally can offer higher returns on savings and lower interest on loans because they are very conservative lenders. As a very small business owner, I get offers of financing every week, most far too expensive, and all of them from the major banks. The Credit Union might loan me money, because I do all my banking there and have excellent credit, but they are not knocking on my door with offers.

I just don't do business on credit. I loaned the business the modest startup costs out of my own savings and have paid back most of that principle while reinvesting the rest of the proceeds in equipment and inventory. I might even cut myself another paycheck before Christmas....