If there’s one thing people who own small- and medium-sized businesses love to do, it’s to complain about banks. A few years ago, they were our best buddies and, now, it turns out they are our worst enemies.
While you’ll never hear someone say, “We’ve lost our home,” what you do hear, more and more these days, is, “The bank has taken our home.” While the truth is that banks are businesses, too, the only difference is that, when they face problems and challenges, they can turn to the state for help.
A pretty big difference, then. If those of us who have spent years getting projects off the ground, whatever they may have been, had known that when we started, we might have thought about setting up a bank, instead.
Because, if things take a turn for the worst, the chance to go the “cashier’s window” and ask for a loan, at a preferential interest rate, and then earn two, three, or even four times as much interest lending it out and keeping the difference, sounds like a very attractive business proposition to me.
Having said that, I don’t think the banks are entirely to blame for all the things we businesspeople hold against them. As far as I know, for a while now, the banking industry just doesn’t work in the way it used to.
In Spain, ever since the authorities decided that “secured” loans did not have to appear in annual accounts, while those that were “unsecured” were obliged to do so, banking stopped being about, “I’ll loan you some money and you pay me back with interest, because I trust you to do so.”
Ever since then, you have been able to borrow money to finance the cash flow of a business while you were growing, but you were only given a loan if you put your home up as collateral. In short: “I don’t give a damn about your business, or whether you can repay your loan; the only thing that matters is the value of your home.”
The obvious conclusion, and one at which things arrived a good while ago, was why with bother financing businesses at all that had nothing to do with homes. Two variables were put on the scale, the home and the business, but the only thing really of interest was the home.
As a result, the best thing to do was focus on financing businesses that built homes. In the old days, businesses were looked into to see if they could repay loans with interest, then, they began to look at two things—the business and the value of the home, which was the “security” for the loan—and now they only look for one thing: the home, which is business in itself.
Financing a business, per se, is of little or no interest, unless the business in question is a large and consolidated concern. But the thing is that most of us are entrepreneurs, with small businesses, which are far from consolidated, however promising they may be.
And, because banking isn’t what it used to be, because people aren’t really that important, and because most businesses are still small, if you don’t own a decent home outright, then there are no loans available. Perhaps that goes some way towards explaining the mess we’ve got ourselves into.
And to make things worse, from one day to the next your home is worth nothing, you have no money to pay the bank back, so the banks themselves cannot repay their short-term loans, while, bolstered by the safety net of “secured loans”, they had extended long-term credit and, all of a sudden, everything grinds to a halt: there’s no more money to lend. There’s only enough to keep paying out dividends, more than 2.2 billion Euros this year alone, and to continue to speculate on short-term transactions which provide short-term profits.
Their business is no longer banking, but investment. And so we can hardly blame banks who don’t want to extend credit. They have changed their business model, just as we have been obliged to change ours as circumstances change. But, for now, they continue to be referred to as banks, when, in fact, they are moving further and further away from banking. At least they have had the foresight and energy to do so in such a short time. Kudos to them. But, as my Mexican friends would say, “Damn, they sure are making us suffer!”
The only thing that hasn’t changed, for now, and note that “for now”, is that people continue to trust banks with their savings. That’s the only thing that lets them keep calling themselves “banks” and has let them go to their respective governments to be bailed out when things have gone wrong. I’m not at all sure, however, that that will continue to be the case in the future.
In a not-too-distant future, I am sure others will offer those savings better returns and improved conditions. Until now, banking has only changed for banks on the asset side of the business. But I think that, soon, the liabilities side will change, too. And I’d sure like to see them, then.