Misguided Reporting on Forcing Banks to Lend

October 19, 2009 by  
Filed under Fools of Finance

Banks of all kinds have become popular targets for everyone. No one likes them. Not liking them doesn’t mean not wanting to borrow money from them. Some folks – including at least one clueless small business owner – think that banks should be forced to lend to them. At least one reporter is all over this important story.

In this recent report from NPR, a “struggling business owner” complains that no bank will lend her money. Many members of the media like to report stories like those of Ms. Summer Plum (yes, that’s her real name). The reporters think they are striking a blow for the little guy against corporate America. Thus, they neglect to critically analyze the situation or even question the credibility of the complaint.

I don’t know Ms. Plum and haven’t seen her business plan (which I suspect doesn’t exist), but I can find several very good reasons why no self-respecting bank would want to lend her money.

1. Her name is Summer Plum. This is just one of those hunch things but what kind of businessperson could you be with a name like “Summer Plum?” It sounds like she may be a hippie refugee from the ’60s. They were never good for business, unless you count the wacky tobaccy trade. Trust me – I grew up in the ’60s.

2. The business model is flawed. Ms. Plum’s small business- “Felicitea” – is a combination of organic tea sales and massage therapy. Gosh, can you imagine the backlog of demand for those products and services in our new frugal economy? There must be thousands of unemployed Americans eager to enter this lucrative profession.  Maybe Ms. Plum should capitalize by opening a school to train certified “drink this free-range tea while I rub your neck” providers.

3. She isn’t making any money. Ms. Plum claims that she “clears” $600/month in her “business”, which consists of herself and a “small room on the second floor of a men’s tailor shop.” (Doesn’t that sound like a place where a bookie or sleazy detective would work?) Then I laughed out loud when I read this Plum quote:

It’s slow. I mean, it’s not fantastic. I can pay the bills, and I pay them on time, which is an improvement over some months this year.

So let me decipher this “cry for help” statement: In some months this year she paid her bills on time but in other months – also this year – she did not. Seriously Mr. NPR Ace Investigative Reporter, would you want your bank lending money to that business?

4. She can’t afford health insurance. Yes I know, lots of people can’t afford health insurance. But Summer Plum is the only employee of Felicitea. So what happens to cash flow when Summer Plum gets the Winter Flu? (Sorry – I couldn’t help myself.)  Do you think that a lender would worry about that? Or maybe banks should be forced to accept “I’m sick so no payment for you this month” clauses in their loan agreements.

There are many legitimate reasons to be upset with banks and their policies. Refusing a loan to Summer Plum is not one of them. I think both the reporter and Summer Plum are deserving of a Fools of Finance award.

What do you think?

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5 Responses to “Misguided Reporting on Forcing Banks to Lend”
  1. Snowy Heron says:

    They really do deserve the Fools of Finance award. Come on now, what the heck was the reporter thinking? I am beginning to think that Journalism schools are attracting students of about the same caliber as Education schools have. I have seen some of the most naive and uninformed things in the newspapers in the last year or so. I think all of the educated reporters have retired or been laid off and the cub reporters from the local high schools hired.

  2. Rick Beagle says:

    I had someone the other day say something to the effect that NPR was known for it’s high journalistic standards. I suppose for some a monotonous monotone of dubious nationality is enough to suggest journalistic credibility, but there are far too many “fluff pieces” like this that seem to undermine their credibility.

    Oh and yes I know MasterPo, they support health reform and for the most part support the liberal ideals, but honestly, junk news is junk news regardless of the political spectrum.

    BTW I’m in Florida for a while, and while getting my Mom’s car fixed, guess what they were playing on the radio? Country? Nope. Hip Hop? Nope. Classic Jazz? Nope. Rush.

    I turned to the manager and say, “You know that guy is an idiot right?”
    “Yep, but that’s what my customers want to listen to.”

    Been here two days and I have already been invited to a “Glenn Beck” party – whatever the heck that is!

    Note to self -leave Florida.

    Rick Beagle

  3. PW says:

    We won’t have to worry about a business model like this (or lack thereof) very long. The very fact that she does not have insurance under the new Obama care will tax/penalize her as an employer for not offering insurance to herself(opps! forgot, can’t have a group plan with 1 person) then she will be taxed and penalized again for being an employee with no insurace,and it will put her out of business. Period. Maybe she will even end up in jail for crossing the “O” man. How will NPR report that? Small business forced to close due to Bush??

  4. cjbr549 says:

    Business loans have always been hard to get, and for good reason. My mother had a small successful business some years ago doing computer work (document writing mostly). My mother has never been good with money, but she did manage to get a $20,000 business loan, as she had been in business for over a year and had a good plan. She blew the money on crap (not the plan presented to the bank) and was out of business in three months. As far as I know, the loan was never repaid. That’s why it’s hard to get a business loan, especially for a small business.

  5. MasterPo says:

    She could (try to) get a private loan instead of bank. That’s always an option. There’s a website (forgot the name) that gets private lenders and private borrowers together. Very risky for both but it’s a market.

    Though I totally agree with all the points above (even Rick’s) as to why she is whining.

    And Rick – As far as the guy playing Rush in his shop to bring in customers, how much of an “idiot” can his customers be? 😉

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