A micro business was sent into a mild panic mode last week after receiving a cancellation letter from their bank. They received notice that the bank was closing their account based on information from ChexSystems. ChexSystems is a check and credit verification agency somewhat like Experian or Equifax, but they track deposit accounts not credit accounts.
Credit Constraints
Alarmed, the company immediately contacted their local banker who was also puzzled by the letter. She checked the account, but could not find any notes or flags to warrant the note. Their accountant was also perplexed because the credit history had been flawless. “We’re a services company and the bulk of our expenses are payroll related.” explained one of the owners. “We’ve never even asked for a formal loan or ever overdrawn our account.” He went on to explain that they remain a micro business, because all of their financing is constrained by the size of their credit card and available cash.
Hoarding Mentality
The Troubled Asset Relief Plan (TARP), has provided massive amounts of money to the largest financial companies in the country. The bank in question is just one of the beneficiaries, but these financial companies have simultaneously reduced the availability of loans to small business.
These huge corporations are now reporting massive profits. So much so that they are eager to pay back uncle Sam.
According to the Democratic Policy Committee (DPC), the FDIC reported that US loans fell by 210 Billion dollars. This represents the largest drop since FDIC starting keeping track in 1984. The DPC is charged with creating new policies and tracking related issues for the democratic party.
Status Quo or Bust
The owner explained that his company had never applied for any expansion loans, but now they are concerned that the the rug is being pulled out from under them without cause.
Without the credit to support expansion, small businesses cannot hire staff. More and more they are forced to rely on contract workers who’s high pay will continue to erode their profits. For micro businesses, it’s an endless cycle of frustration.
Access to credit to support expansion, and health care to support workers’ needs, remain the greatest barriers to job creation and subsequent growth for micro businesses.
As of now, this small business is hoping that some small clerical error is in play that will exonerate them. So far, they have been unsuccessful in getting any meaningful information from ChexSystems.
