The Obama administration says that injecting $30 billion into community banks will help get small business growing again.
The theory is that smaller banks will start to relax as their capital reserves rise and feel comfortable lending to small business again.
Then, the theory goes, small businesses will start to borrow, invest and hire.
There is plenty of skepticism about that, here and elsewhere.
But one thing that isn't in dispute: commercial and industrial credit clearly has shrunk in the Wichita market in 2009, likely between 5 and 10 percent.
Local bankers say the decline in lending has more to do with the number of qualified borrowers dropping. Small businesses have pulled back into their shells, waiting for the economy to recover, bankers say.
They also acknowledge they are reacting to bank examiners telling them to increase capital reserves and generally tighten loan standards.
Many local businesses, even startups, say they are still able to get credit, but others that might have once gotten credit have been turned down repeatedly.
Nationally, only 40 percent of small businesses say they got their entire loan request granted in 2009, according to a recent study by the National Federation of Independent Business. In 2006, that was 90 percent, the NFIB said.
Bank call reports filed with the Federal Deposit Insurance Co. suggest that commercial and industrial lending in the Wichita area shrank more than $100 million over the course of 2009.
Outstanding commercial and industrial loans at the market's largest lender, Intrust Bank, were down 6 percent in the fourth quarter compared with the same quarter of 2008, according to the call report.
Emprise Bank's commercial and industrial loans are off 13 percent. Equity Bank is off 4 percent.
Regional and national banks don't break out their loans in the Wichita market, but companywide their lending is down far more than the local banks.
Bank of America, the Wichita market's second-biggest bank by assets, saw its nationwide commercial and industrial loan portfolio fall 21 percent in 2009.
Instead of lending, the banks put more money in government securities — where it provides that capital cushion and generates a nice bit of interest income for the bank.
Intrust's collection of government securities rose from $515 million to $766 million during 2009.
The reason for the reduced credit, said Intrust executive vice president Lyndon Wells, is a combination of fewer qualified loan seekers and more assertive bank examiners.
"Our incentive is to lend," Wells said. "That is our primary business."
The bank, he said, makes less money if it invests instead of lends. The bank can borrow from the government at very low rates, but it can't get much of a return — as long as it invests that money prudently, rather than in some high-interest, high-risk investment, he said.
"I can assure you that at current rates, it's difficult to make money other than through loans," he said.
Teri Ginther, executive vice president, retail division, of Emprise Bank, said she doesn't blame the examiners.
"They are getting mixed messages, and we're getting mixed messages," she said.
Loans can be hard
Justin Baxter helped buy longtime Wichita commercial roofer Mahaney Roofing Co. in October.
He and his partners eventually got a loan they are happy with from UMB Bank.
But, he said, some banks flatly said that they weren't interested while others offered conditions so burdensome they might as well have said they weren't interested.
One local bank, Baxter said, asked the seller to kick in cash, beyond the buyer's down payment, because it didn't want to lend more than 60 percent of the purchase price.
"It's like when you're a kid and you go to buy your first car, and they ask for a co-signer, a guarantee the money will be paid back," he said.
Key factors for getting a loan, according to the NFIB analysis, were higher credit scores, more property collateralized for business purposes and fewer second mortgages.
One of the surprising findings, said analysis author William Dennis, is that small and regional banks are more likely to lend than large "too-big-to-fail" banks.
Large banks, he said, relied heavily on models to determine who was creditworthy. Those models self-destructed, and the government reaction has made the confusion worse.
The result, he said, is that many bankers won't lend, just to be safe.
"Nobody knows what the rules are," he said. "That is what causes a credit collapse like this. And there's a lot of CYA going around."
The bankers agreed that injecting money into the community banking system, through the Small Business Administration might help those on the edge of being turned down, but its effects would be pretty limited.
And, at least for now, argue some business leaders, it's also unlikely to mean much hiring without an economic upturn, said Susayn Brandes, president of Great Plains Ventures.
"Everybody is holding their cash," she said. "There's nothing to invest in.... If there is a demand for our products and it's a sustained demand, then I would hire people."