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It's how they make money, after all. It is true, however, that demand is down.

Article by: JOE WITT

Of course not.

It makes no sense to conclude that these businesses were purposely not engaging in commerce. It makes no sense that these businesses would refuse to conduct the transactions that generate revenue for them.

Yet for some reason, some continue to draw the illogical conclusion that the Minnesota banking industry is purposely not lending.

A bank's business model is fairly simple. The bank accepts deposits from consumers and businesses. It then invests those deposits into an asset that will generate a positive return.

By far, the bank's best revenue-producing option is making good, performing loans. If the bank does not use its deposits to fund loans, its only option is to purchase low-risk securities that have very low returns, such as government bonds.

That formula does not work. Banks cannot make money without making loans, just as Cub Foods cannot make money without selling groceries.

Far from being dry, the banking industry's wells are overflowing with lendable funds. In the Star Tribune's article, that point was well-made by Doug Hile from KleinBank but was given no credence.

Overall deposit levels at Minnesota banks are very high. Banks need to identify good opportunities to invest those deposits, so they are actively looking for qualified borrowers who want to take out loans.

The article stated that every banker interviewed for the story reported that loan demand from qualified borrowers is down. That's true.

Consider the monthly survey conducted by the National Federation of Independent Businesses. It asks small-business owners to rank their most important business concerns.

The December survey showed that "weak sales" remains the top concern. Just 4 percent of small-business owners reported that a lack of financing was their No. 1 business concern.

Some 93 percent of businesses reported that all of their credit needs were being met, or that they were not interested in borrowing.

That statistic shows that the vast majority of small-business owners are satisfied with their current level of financing, but it also means that demand for new loans is very low.

To small-business owners: Minnesota banks are lending. They are flush with cash right now, and interest rates are at historically low levels.

But understand that in today's banking environment, there is something of a "new normal." The banks may require more documentation to ensure that you are creditworthy, because bank examiners are reviewing new loans very closely to make sure they provide cash flow.

Also, if you are taking out a loan that includes a government guarantee, such as a Small Business Administration loan, there are extra paperwork requirements. Your local bank is well-positioned to help you work through the details.

Finally, if you are getting a loan secured by real or personal property, remember that if the value of your collateral has declined, you have less equity available to secure your loan.

But none of this should dissuade you from making a loan request. Know that your local bank is open for business.

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Joe Witt is president and CEO of the Minnesota Bankers Association.

Updated: January 26, 2012 - 8:25 PM

Counterpoint

A Jan. 22 Star Tribune story focused on the notion that banks are not lending, starting with the headline ("For small business, loan well is still dry"). That supply-side focus makes no sense from an economics standpoint, and it is inaccurate.

When the Gap's total annual sales were down 7.8 percent in 2008 and another 2.3 percent in 2009, did people conclude that the retailer refused to sell clothes?

When General Motors reported that its annual domestic new car sales were down 30.1 percent in 2009, did people conclude that it had refused to sell cars?

When annual home starts in the United States in 2010 were 35 percent lower than they were in 2008, did people conclude that homebuilders refused to build and sell new homes?