ARLINGTON, VA. (TheStreet) -- The backing of small-business loans with real estate collateral -- problematic, since much of that collateral has been drastically devalued in recent years -- got serious discussion Thursday at a forum sponsored by the Federal Deposit Insurance Corp.
But no solution, according to at least one banker specializing in small business.
"Most businesses over the last 24 months had significant strains. If you don't have the collateral and you don't have the cash flow, then where are we making these loans? No one was able to answer that," says Frank Sorrentino III, chairman and CEO of North Jersey Community Bank.
The three-hour, two-session event had public- and private-sector officials weighing in on the issues and challenges in getting banks to step up lending to small-business owners, including FDIC Chairwoman Sheila Bair, Fed Chairman Ben Bernanke, U.S. Chamber of Commerce Chairman Thomas Bell Jr. and Sen. Mark Warner (D-VA).
The FDIC recommends that banks look less at collateral values and concentrate more on business cash flows when deciding if a borrower is approved for a loan, Bair said, later announcing a toll-free hotline small-businesses borrowers can use to make inquiries with FDIC officials or register concerns about the availability of credit.
Karen Mills, administrator for the Small Business Administration, said the SBA continues to be "highly focused" on getting small business lending back and, among other changes, will soon allow business owners to refinance their owner-occupied commercial real estate mortgages into an SBA loan.
Sorrentino, whose bank caters to small business and has been making loans, remained a skeptic.
"Again, no one could get around how do we make a loan to someone who doesn't have collateral or good cash flow," Sorrentino says.
He thoughts went in a different direction: "If we can create jobs, then that will create confidence, stimulate the economy," Sorrentino says. That "loosens up the lending spigot."