We all know that it is hard for small businesses to get financing these days from banks – it was never a piece of cake, and now that the credit crunch is on for so long we see it has gotten ridiculous. But… did you ever wonder what a bank does when it needs financing? Yes, banks need money too! In fact, banks don’t just give you a hard time when you want a loan because they are unsure if you’ll default — they sometimes just don’t have the money.
Lenders, especially small ones, struggle regularly to find investors. This is in part because of federal regulations placing restrictions and rules on investors who invest in a lending institution. Basically, if a private equity fund (or other investment entity) owns 9.9% or more of a bank, then they are required to do special reporting and subject itself to regulatory scrutiny. Beyond that annoyance, in order to own more than 24.9% of a bank, an entity has to register as a “bank holding company” and must be a “source of strength” for the lending institution.
To say the least, these can be big deterrents to investors considering investing heavily in a bank — when combined with the uncertainty about the future of lending, this makes for a shaky proposition for a bank in search of cash. If the bank doesn’t have cash, it can’t lend you or your business any either!
It was recently reported in the Wall Street Journal that officials from the Fed have been meeting with various buyout firms to brainstorm issues and solutions which they face when considering investing in a bank. If they succeed in finding a way to reinterpret /re-legislate the current laws, then more private equity firms may be able to invest in banks. The real question is: given the current lending crisis, will any one will want to invest, even if the red tape is cut?
If you don’t want to wait to find out and you need cash for your business today, then check out alternative financing options like credit card factoring and business cash advance.
OK, I’ll post two jokes just to be fair – showing both sides of the story.
First, the way most of us would see it:
A Loan Officer died. When he met St. Peter at the Pearly Gates, he presented himself for admittance to Heaven.
Peter said, “Well, you did a lot of good helping people get homes and you also donated a lot to charity. You even worked with Habitat for Humanity. But you told too many “little lies” to the underwriters and were very rude and unkind to both your processor and office staff.
Because we aren’t sure where you’re going to fit in best, we’ve decided to give you tours of both Heaven and Hell and let you decide where you feel most comfortable.”
In Heaven, the Loan Officer really liked the streets paved with gold and the big mansions, but he found all the harp music to be a bit irksome.
When he toured Hell, he saw that everyone had their choice of playing tennis or golf, chilling by the pool smoking and drinking, or playing cards and dancing in the clubhouse. He said to St. Peter “This is a hard choice! Can I sleep on it?”
When they asked him the next morning, he begged, “Oh please send me to Hell!”
When they opened up the doors of Hell, it had completely changed! It was the stereotypical Hell of torture, fire and brimstone. It was so hot and horrible with people burning and screaming!
Hey this is not what you showed me yesterday!!” the Loan Officer accused, tears and sweat pouring down his face.
St. Peter had a cold and abrupt reply: “I know. Pity you didn’t ‘lock it in’ yesterday.”
The version most loan officers would prefer to tell goes something like this:
A Loan Officer was at the Pearly Gates trying to get in heaven. St. Peter asked him “What did you do when you were living?”. The Loan Officer answered “I was a mortgage loan officer.” St. Peter told him, “Go right into heaven – you’ve already been through Hell!”
Ok, you may have heard this before, but I think its hillarious. Of course, this would never work at FastUpFront, because we don’t ask for collateral! This joke is going to be outdated soon. 😉
A well-dressed blonde woman goes into a bank in centran Manhattan and sits down to speak with the loan officer. She explains to him that she will be traveling to Europe and will need a $5000 loan. The loan officer explains that the bank will need some sort of collateral. The woman produces keys to a Rolls-Royce parked outside. She offers them to the loan manager, along with an envelope containing the car title. The loan officer agrees to accept the car as collateral. As the woman leaves, there are some snickers that she would leave a $250,000 car as collateral for a $5000 loan. One of the bank managers takes the keys and from the loan officer and drives the car himself into the bank’s underground parking.
Two weeks later, the woman comes back and repays the loan, plus $15.43 interest. As she is taking her keys back, the loan officer gets up the courage to ask the question which has been nagging at him: “While you were gone, we looked into your financial situation and we found out that you are a multi-millionnaire. Why would you need a $5000 loan?” She replies “Where else in Manhattan can I leave my car for two weeks, still have it be there when I get back, and only pay $15.43 for parking?”
Who said blondes were stupid?