Bank bosses - Jim Rohr at PNC, Mark Turner at WSFS, to name a couple of recent examples - tell me they want to lend more to small businesses, but they can't find good borrowers - since most solvent business operators are too scared of business conditions to want to take on more debt.

"I don't buy the theory there's not a lot of demand for small business loans. There's plenty of demand," responds Ami Kassar, the ex-Advanta Corp. manager who runs small-business loan advisor Multifunding Corp., up in Broad Axe, Montgomery County, which, he says, is on track to close "over 50 loans, with (total) balances over $30 million, in 23 states," up from 4 loans for $3 million the year before.
Multifunding and its staff of 5 screens and matches business clients with banks and other lenders, for loans under $1 million, and takes payment both from borrowers and from lenders. The shortage of banks willing to make such loans, at market interest rates around 4% to 8%, has driven many borrowers to "factoring, accounts receivable financing, hedge funds, and asset-based loans" typically charging 15% up to 40%, Kassar says. His firm tries to match potentially good credit risks with lower-rate lenders who might not find each other unassisted.
Why is this hard? "The banks want three things: cash flow, collateral, and credit. When they can find all three, they'll fight to do those loans. But there aren't too many small-business borrowers who meet all three criteria. Especially for collateral. Service businesses don't have collateral" since they typically don't own buildings, valuable machines or liquable inventory. So banks are "forced onto this high-interest-rate treatmill. There is plenty of money available - at the higher interest rates."  
What about the bankers who say there aren't good borrowers? "This demand spiel is how the bankers love to cover up their lackluster lending. I'd like to see their approval rates" for would-be business borrowers under $1 million.

Kassar crunched the numbers to test his theory. Checking US banks' quarterly call reports ("Reports of Condition and Income," view them at www.fdic.gov), he found that, among the banks that control 80% of US deposits, total deposits "have gone up from $5.7 trillion in 2007, to $7.5 trillion this year," but small-business loans by the same group of lenders (which has been consolidating every year) has fallen to $309 billion, from $400 billion four years ago.
Big banks neglect small loans for the same reason real estate salespeople would rather sell one $1 million Medford mansion than 10 $100,000 rowhomes: "it's easier to lend AT&T a killion dollars to buy T-Mobile than to make a million small-business loans," Kassar says.
"But that's what the economy needs to recover."
What, if anything, can the government do to make small-business lending more attractive? "The government just leans on the Small Business Administration," which provides taxpayer guarantees for about one-seventh of US small-business lending. "SBA plays an important role, but it's not the end-all," Kassar adds. "The government ought to encourage bank examiners to look at the ratio of small-business loans" to total bank business.
As an aid to that exercise, Kassar has set up an online search -- www.multifunding.com/banks -- that ranks, for example, PNC as "poor," because its reported small-business loans equal just 5% of its deposits, below the national average, while Philadelphia's tiny Valley Green Bank (which makes far fewer loans of any kind than PNC does) ranks "excellent," because it lends fully one-third the value of its deposits to small businesses.