Many entrepreneurs say the banks just arenâ€™t lending. Theyâ€™re going through every possible avenue with the understanding or the belief that the banks â€“ community or otherwise â€“ just arenâ€™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 theyâ€™re going to approve a loan. Whether the entity is going to be a good credit? And thereâ€™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 recordkeeping are you doing? What kinds of banking services are available for small business before you start your business? Know what are your projections? Whatâ€™s your income? What are your expenses? What are you planning for? Where are your reserves for unanticipated issues that might come up?
Thereâ€™s a lot of planning that goes into just opening and operating and establishing a small business and so thereâ€™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 thereâ€™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 donâ€™t have jobs they canâ€™t make payments on their loans. And so the bankâ€™s balance sheets are improving, earnings for the industry are up. And so the financial indicators are moving in the right direction but weâ€™re not out of the woods yet. Itâ€™s a fragile economy and we just are taking it one day at a time.