Following the financial crisis, there was a serious credit crunch. Wall Street financial institutions are taking the blame now. United States financial institutions are being unwilling to loan any money out even though billions were given to them in government bailouts. Last December President Obama met with bank executives at the White House and urged them to find new solutions to increase small business financing. One of the ideas suggested was to take a “second look” at loan applications. The second look program has begun in many major U.S. banking institutions ever since that meeting. 2nd look may really be helping, after nine months of observation.
Second look doing well
When the president challenged Wall Street banks to take a second look at lending last December, he really went further. The Associated Press reported on the meeting. Apparently Obama wants to increase small building by asking financial institutions to “explore each possible way” to do it. He also thinks that they have to take a “third and fourth look” along with the 2nd look. U.S. Bancorp CEO Richard Davis, chairman of the Financial Services Roundtable, said he would present the idea to other members of the group, which represents the country’s largest financial companies.
How we used to lend
Nine months later, the Financial Services Roundtable claims nearly all its members have second-look programs. Financial institution of The United States Corp., J.P. Morgan Chase and Co., PNC Financial Services Group Inc. and U.S. Bancorp are all members of this. The second look program makes lending possible like it was back within the day. This is what the Wall Street Journal said. Instead of automated analysis of credit scores and other data that drove the industry when credit was easy and cheap, now banks are taking into consideration a borrower’s track record and relationship with them. Some banks search for credit score errors that hurt borrowers the first time around, or ask about unreported sources of income that could lower the risk of a consumer loan. The second look program is having an impact, says the Journal . Last month’s Federal Reserve survey of senior loan officers showed the first easing of lending standards for smaller businesses since 2006.
Can sometimes be worth the second look
Rather than avoiding risk, banking institutions are using the program as a business opportunity with 2nd looks. At bNET, Alan Sherter states that banking institutions may not be putting risk into lending as much as they are using the 2nd look program for PR purposes. The joblessness rate is unlikely to get any better with the small business loans that probably will not make the companies boom. Many smaller businesses hope to increase although they mostly want to just survive the recession. These second looks will greatly help these companies last a little longer.
Further reading
Associated Press
msnbc.msn.com/id/34416646/ns/business-us_business/
Wall Street Journal
online.wsj.com/article/SB10001424052748704062804575510302866961116.html
bNET
bnet.com/blog/financial-business/due-credit-banks-offer-second-chance-to-small-businesses-rejected-for-a-loan/7715
