Small businesses face frustration at the bank

Even well-qualified small businesses face frustration at the bank

Staff WriterMarch 12, 2010 

Last week, David Abels walked into his Wachovia branch in Chapel Hill armed with two years of personal and business tax filings to prove his credit worthiness.

An entrepreneur whose Carrboro company, Mom, Dad and Baby, makes products targeted at parents with young children, Abels was seeking to expand his small-business credit line from $25,000 to $100,000.

What Abels ended up with was a heap of frustration and even more skepticism about banks' willingness to lend.

Abels wanted the larger credit line to pay a Chinese manufacturer that has agreed to make his new line of waterproof baby bath books.

He also wants to expand distribution of his company's first product - a carabiner-type device called The Mommy Hook that can be found at buybuy BABY, Toys R Us, Bed, Bath and Beyond and other stores.

Abels said a loan official from Wells Fargo, which purchased Wachovia in December 2008, later called to say that his application had been denied because he's an existing Wachovia customer and the bank is no longer lending to existing customers.

"It's insane," Abels, 50, said, noting that his Wachovia banker was optimistic about his application after seeing how profitable his business is. "If I operated like that, I'd be out of business. My whole business is based on selling to existing customers."

The frustration expressed by Abels has become commonplace among small-business owners, many of whom have been hurt particularly hard by the credit crunch.

"From what we are seeing, it's very difficult for small businesses to obtain any type of credit from the larger banks," said Gregg Thompson, state director of the National Federation of Independent Business, which counts 7,000 North Carolina small businesses as members.

Abels, furious at the denial by Wells Fargo, contacted the White House, The New York Times and local media.

He also bought 100 shares of Wells Fargo stock so he could register a complaint with the bank as an investor. He wrote a letter to Patricia Callahan, the head of Wells Fargo's transition team overseeing the Wachovia merger.

"I am respectfully giving you the opportunity to step up," he wrote.

This week Wells Fargo did respond.

Jack Clayton, Wachovia's regional president for the Triangle and Eastern North Carolina, said Abels' request for a credit line extension came at an inopportune moment.

Wells Fargo is shifting all Wachovia business loan accounts over to its Wells Fargo computer system. During the two-week transition period, the company isn't adding new accounts to the Wachovia system.

"It's almost like he happened to come in the perfect window where we were switching itover," Clayton said.

Clayton wouldn't say whether Abels' original request had been denied, but he said the request is active now and being reviewed by underwriters.

Last week, Gov. Bev Perdue announced a program to encourage state banks to make more Small Business Administration loans.

Tony Plath, a banking professor at UNC Charlotte, said banks' lending levels reflect concern over their existing portfolios and a lack of well-qualified borrowers.

Banks, he said, are also hearing different things from the government.

The executive branch is encouraging banks to lend, while regulators, particularly the Federal Deposit Insurance Corp., is rigorously reviewing banks and their loan portfolios.

"The government is really speaking out of both sides of its mouth," Plath said.

Wells Fargo says lending is a priority and the bank is doing everything it can to make sure the Wachovia merger is as seamless and as smooth as possible for its customers. The bank says it lent $13 billion to small businesses in 2009 and led the nation in Small Business Administration loans.

It expects to expand lending to more than $16 billion this year.

Abels, who is still waiting to hear whether his credit request is approved, believes going public with his story has helped his cause.

"If I didn't push this, it would have ended with that first phone call I got," he said. "They would have dropped me." or 919-829-4548

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