The Compelling Case for Banking Transparency In Small Business Lending

Lending to small business is critical to the US economy. As stewards of small businesses, how can we make good decisions if we don’t have access to information? Banking transparency in Illinois and elsewhere assures a healthy small business climate because it fully discloses loan options and historical lending information from banks.

You might think this sounds sensible and easy. It is not. The Small Business Advocacy Council supports banking transparency, and we have and will continue to make strides to see that it continues.

A brief glance at history explains why this is important today.

The Glass-Steagall law hails from 1933 on the heels of the Great Depression. Our country’s biggest stock market crash in history changed the stature of financial institutions forever. Glass-Steagall, named after a former U.S. Treasury secretary and then chairman of the House Banking and Currency Committee, restricted banks from lending and investing. The basic premise: You shouldn’t make risky investments with insured deposits belonging to hardworking people.

In 1999, the Glass-Steagall law was repealed thanks to pressure from the big banks. Some say it laid the groundwork for the ruinous years to follow. Many banks failed during the Great Recession culminating in a huge consolidation among financial institutions. New laws were enacted.

Immediately, small business lending turned into a cumbersome, complicated transaction. Remember the tablecloth trick where all the plates stay put after the cloth is pulled? Yes, well, banks started calling in loans by small businesses with many of them closing posthaste. Believe me, the consequences of this reverberated to all businesses – whether they were directly affected or not. Twenty percent of our clients experienced the fallout.

In the 2011 spring legislative session, the SBAC scored a big win by encouraging the Illinois Department of Financial and Professional Regulation (IDFPR) to publish Illinois bank small business lending statistics on their website. Our group was young at that point, but felt like we could tackle even more.

The SBAC supported legislation sponsored by State Representatives Jehan Gordon and Dan Biss to require the agency to post small business lending information by individual bank, which led to several discussions with the IDFPR about the initiative. As a result of open communication and collaboration (and a healthy dose of determination), IDFPR volunteered to post the information without a legal requirement.

Why dredge up all this now? Again we find ourselves at an economic turning point: a slowing economy in the European Union, falling earnings in China and market volatility in the U.S. earlier this year. Not to mention the upcoming election welcoming wide speculation as to its impact on our economy.

But we’re all a bit smarter now. Based on experience, risk will rise, business will slow and loans will be scrutinized once again. The stock market activity in Q1 is indicative of the fear that is out there, a roller coaster ride and huge swings fueled by speculation and problems in our underlying economy.

Just when you think it’s behind you … 

So once again it’s time to push for transparency. Learn about the lending history to small businesses by Illinois banks. The information, updated quarterly and listed by county and bank, is posted at the IDFPR website. And know that the SBAC will continue shining a bright light on banking transparency so small business lending doesn’t ever get lost in the shadows.

Thank you to Blanca Campos, COO, Advocacy for the SBAC, for contributing information to this post.

Steve Banke is founder and CEO of 3Points, LLC. Stay tuned for future articles on small business topics in both the 3Points newsletter and blog posts. If you want to know more about the SBAC, email Steve or call him at (708) 491-0300.