MEDIA RELEASE
“I’ve been listening and discussing the financial challenges facing Hawaii small businesses with members of the Leeward Realtors on Oahu, with business owners the Big Island, with farmers on Molokai, and in meetings at the Small Business Development Center on Maui,†said U.S. Rep. Neil Abercrombie. “Access to credit — the ability to obtain operating funds — is clearly a life and death problem confronting small businesses throughout this state.â€
Abercrombie has been working to help small businesses in two ways: interceding with banks and other lenders to find out why they’ve made only half as many business loans as last year, and by introducing the Small Business Credit Card Act in the House of Representatives.Â
“I’ve have contacted officials at six local banks to ask why established, creditworthy businesses are having such trouble getting routine business loans and lines of credit, even the Small Business Administration’s America’s Recovery Capital (ARC) Loans, which are fully guaranteed by the U.S. government,†the Hawaii Congressman said.  “The inevitable result of such a lending freeze is very simple.  If small businesses can’t buy new inventory, purchase supplies or make payroll, they shut down.â€
Additionally, more and more small businesses, faced with a lending freeze by their banks, are turning to their credit cards for cash flow. Â In fact, a recent survey by the National Small Business Association found that 44% of their members reported using credit cards to keep their businesses running.Â
“This makes our small businesses highly vulnerable to retroactive interest rate hikes, unannounced cuts in credit limits, double cycle billing, in which they’re charged interest on balances already paid, or any of the other questionable practices used by some credit card companies.â€
To help protect small businesses forced to rely on credit cards for cash flow, Abercrombie has introduced the Small Business Credit Card Act of 2009. Â The legislation extends the same protections for consumers against abusive credit card company practices contained in the Credit Cardholder Bill of Rights he co-sponsored, to small businesses with 50 employees or fewer. Â He is working with Republicans and Democrats in the House and Senate to build support for the bill.
“Our small businesses are leading the country’s economic recovery.  They are where most Americans go to work, and where most new jobs are created.  They’re not asking for a hand out, just a fair shake,†Abercrombie said.
Comment No. 1
From this article, it seems that Rep. Abercrombie doesn't understand some things.
Firstly, banks are not turning down creditworthy businesses. They can’t afford to. The definition of credit worthy is the demonstrateble ability to repay the money borrowed without resorting to traumatic or legal actions. A business needs to show that they can repay the loan out of cash flow that is reasonably certain to occur and that if it does not occur, the business has a secondary means to repay the debt. Remember, commercial banks like First Hawaiian and Bank of Hawaii don’t “invest” money; they’re not in the business of taking risks.
Comment No. 2
They are lenders; they “rent” money in situations where they can be reasonably assured that they’re going to get it back. Would an equipment rental company let you take their backhoe if they weren’t reasonably sure they were going to get it back along with the rent? Not a chance. It’s “investment banks” that “invest” money and take risks, and they charge very high rates (like credit cards?) or take an ownership interest in the company in which they invest. A commercial bank doesn’t seek to own your business or participate in your profits. They get the same interest rate regardless of whether you do really well or just OK.
Comment No. 3
If a business runs out of cash to make payroll or other expenses, a lender has to examine the reason they ran out. Often it is because their sales revenues have dropped. If this is the case, how will they be able to increase their sales revenues? Will the borrowed money accomplish this or will it merely put off the inevitable by exacerbating the company's inability to pay future expenses once the loan proceeds are used up. And remember, borrowing also puts an additional burden of repayment on the company's cash flow.
Comment No. 4
This is often the situation a lender is faced with especially in this economy where our sales revenues are down due to the overall poor economy. So, instead of borrowing which is only a temporary help but worsens the situation in the long run, a business should be looking at reducing expenses down to a level where their current revenues can pay them. Hence all the layoffs we're seeing. For a company to use credit cards is foolish. Credit cards are still being handed out by high risk companies that recover their losses of fail repayments from the high rates they charge. Remember, risk equals reward. So, if the rate is high, it’s because the risk is high. You can “bank” on that concept to always be true except of course where the government is involved.
Comment No. 5
With the government, decisions to extend loans or grants are not made based on sound financial principals, but on political agendas. The government can lend money in cases there it has no clue if it will be repaid because it can always get more money through raising taxes or floating bonds for future generations to deal with. Try that trick in your business. But even with above-mentioned fully guaranteed SBA loans, the government makes the banks go to reasonable lengths to make sure the money will be repaid. If the government didn’t required that, then it wouldn’t be a loan; it would be a grant and bank participation would be unnecessary.
Comment No. 6
Rep. Abercrombie, if the banks aren’t doing what they are in business to do, there must be a good reason. The answer is obvious; the economy is poor and what were at one time creditworthy borrowers are no longer creditworthy due to poor operating performance. If their performance is still good, they’d still be getting bank loans. If lenders could use a crystal ball to determine when the economy will turn around and when the company will be able to generate sufficient revenues to repay the loan, then we might not have this problem. But lending to someone who may well not be able to repay the loan is not only irresponsible, but it’s unintelligent. It merely takes a bad situation, for both the borrower and the bank, and makes it worse.