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Basel III Reforms | Credit Trends for Small Business

The smaller local banks neither triggered the crisis nor got the bailout money. Yet it is they that will be affected by the new rules, and that effect could cripple local lending.

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New financial regulations were adopted by the US in 2010. Here's how a savvy financial analyst summarized their impact for small business.

"Basel III -- Tightening the Noose on Credit"
For smaller commercial banks and public sector banks (government-owned banks popular in Europe), the credit-constraining effects of Basel III are a serious problem. But larger banks, said Keller and Jordans, "were quick to praise the agreement and insisted they would meet the required reserves in time." The larger banks were not worried, because "The largest U.S. banks are already in compliance with the higher capital standards demanded by Basel III, meaning their customers won't be directly affected." Their customers, of course, are mainly large corporations.

"Small businesses that rely on borrowing from community banks," on the other hand, "may be more affected... They will try to make up for the higher capital requirements by lending at higher rates and stiffer terms." Ellen Brown

She goes on to say, "If the big banks that brought you the current credit crisis can already meet the new requirements, what exactly does Basel III achieve, beyond shaking down their smaller competitors? As David Daven remarked in a September 13 article called "Biggest Banks Already Qualify Under Basel III Reforms": "Indeed, on the day Lehman Brothers collapsed, they would have been in compliance with the Basel III standards."

It appears the US small business sector is going to need the new "micro finance" strategies that are being developed for "undeveloped economies". Maybe we're overdeveloped -- which could be worse.

Small business strategy will need to change in the coming months, quarters and years. Growth patterns are changing rapidly. Economy and efficiency are replacing high growth spurts.

Customers are not only better educated about options, but are acting on their knowledge more than ever before -- at least in our lifetimes. They look for significant value in price and performance. They are holding significant equipment and property longer. They are sharing, like their parents taught them.

Small business will take a hit with this long term financial realignment -- and it doesn't appear it's a "socialist" restructuring, but a "big global banking" restructuring that we will have to cope with.

So, if you're a small business owner or manager -- think smaller, think efficiency, think manual vs. high tech, unless that high tech has a short payback, because you won't be able to finance long payback projects as easily as you did a few years ago.

And if you're a product or service designer or strategist, start with the basics. Make your merchandising system more efficient. And develop your best customers into raving fans. (We used to call those relationships "friends".)

Edited by Carolyn Allen
| small business loans | small business tactics | small business | small business financing | financial management |

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