Bank of America Small-Business Lending Under Fire
In an economy where every bit of capital can help or hurt a small business, is Bank of America cutting credit lines to some small businesses?
That question emerged on Tuesday after a Los Angeles Times report cited at least two small-business owners who claim that Bank of America is now forcing them to pay their balances in full versus on a monthly basis — a move that could wipe them out.
"I was like, 'Dude, you're calling a guy who's barely surviving!'" Babak Zahabizadeh of Burbank, Calif.-based Messengers & Distribution told the Times, claiming he received a letter from Bank of America that stated his $96,000 debt must be repaid later this month. "My final word was that I can double my payment — but not triple or quadruple it. I told them if they apply too much pressure they're going to push me into bankruptcy."
In an interview with The Huffington Post, however, Bank of America spokesperson Jefferson George disputed that portrayal and said that the struggling bank's recent moves are not designed to raise capital. "What we've done is not cut or close credit lines for small-business clients across the board, but rather we've addressed this specific portfolio with a very, very, very small percentage of customers, and just put into place standard practices such as a maturity date and an annual renewal process," Jefferson said.
According to Jefferson, Bank of America has 4 million small-business customers nationwide, about 1.5 million of whom hold credit agreements. He said the small businesses within this particular portfolio comprise a small percentage — in the low single digits — of those 1.5 million.
"Even if it's a very small number, it's important to be clear and transparent, and we explained these changes to our impacted clients in letters we sent more than a year ahead of that maturity date, which allowed us to work with all of them to explore other products that were available to them," Jefferson said. "We've been able to work with 98 percent of our clients within this portfolio, and the overwhelming majority of those have the same interest rate as before. That has been, by far, the most common resolution. In very rare instances, you'd see a different solution, such as a different term or adjusted rate."
"I'm not aware of any case in which we failed to notify a client a year or more in advance," Jefferson added.
Ami Kassar, founder and CEO of MultiFunding, a Philadelphia-based firm that helps small businesses find loans, doesn't buy it. "In our opinion, this is yet another example when a big bank's public-relations tactics about small business doesn't match their actions on the street," Kassar said. "Small-business owners need loans and answers. They don't need fancy suits visiting their offices, making promises that there is a good chance they won't be able to fulfill."
According to MultiFunding's research released Tuesday, Bank of America ranked 6,128 out of 6,800 banks in the United States based on small-business lending performance. Kassar also found that Bank of America's total small-business loans, which he defines as business loans with balances of $1 million or less, decreased by $411 million between the second and third quarters of 2011. "While the average bank in America uses 7.75 percent of its deposits to make small-business loans, Bank of America uses 2.51 percent," Kassar said. "This is a disgrace for the largest bank in the country."
Still, Jefferson is adamant about Bank of America's commitment to small business. "We're working with each and every small-business customer we have on their current needs — new, existing and down the road — and I'm not going to minimize anyone's situation," he said. "We're going to try to find the best situation for them that would prevent a bad loan, because a bad loan would hurt the small business much more than the bank. We're going to coninue trying to make every good loan we can to businesses that show an ability to repay the loan."