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Comment by rrggrr | Hacker News Reader

This is a disaster in the making: About 80% of small business loan applications in the US are denied. The cost of underwriting and servicing the loans and Federal regulations make these loans almost unprofitable for big banks. Negative interest rates won't help.

Negative interest rates will instead force big business to seek safe returns wherever they can - and that will not be by investing in small business. That money may well be deployed in competition against small business.

Consider this... the US Small Business Administration's loan portfolio is barely a rounding error compared to the cost of quantitative easing and national security expenditures these past years. Double or triple SBA loans and USGOV balance sheet will not feel it, but the impact on job creation, salaries and investment could well exceed any benefit in the US from negative interest rates.

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Disagree. Your linkages are backwards.

This is about liquidity.

Lower rates are a way to create liquidity (as it makes is painful to hold onto cash).

My take: https://medium.com/@alexanderbcampbell/a-turn-in-thecapitalc...

https://research.stlouisfed.org/fred2/series/EXCSRESNS

There is no liquidity problem in the United States. Bank & large corporate balance sheets are flush with cash. There is very much a velocity problem.

https://research.stlouisfed.org/fred2/series/M2V

The velocity problem is the intersection of demographic changes (wealth holders are old), corporate tax policies (money is sequestered) and pervasive fear over global economic stability (china).

Negative interest rates cannot change any of these factors, and I question if negative interest rates will force the flow of significant funds into commodities, thus reversing the current deflationary spiral.

If the USGOV wants inflation create it the old fashioned way... incentivize risk taking.

About half of all new establishments survive five years or more and about one-third survive 10 years or more. As one would expect, the probability of survival increases with a firm’s age. Survival rates have changed little over time. - Source: U.S. Bureau of Labor Statistics, BED

Small business loans are inherently risky and an 80% rejection rate accurately reflects that risk. How would creating a bigger market for bad/risky loans help the situation in any way? Sure, it might boost employment/wages temporarily, but in the end a majority of small businesses fail and enter bankruptcy. They bring their loans to bankruptcy court where they are renegotiated, leading to a haircut for the banks, less liquidity, and a waste of time/money/effort that could have been better spent elsewhere.

Remember, bad loans in the mortgage market caused the great recession. Higher loan standards are a good thing - and a necessary outcome of the 2008 fiasco of irresponsible/non performing debt getting pushed off bank balance sheets to the fed and ultimately the public.

Let's understand what negative interest rates mean for US Banks. It likely means an increase in low margin loans and reserves for those loans - to a universe of borrowers no bigger, possibly even smaller, than at present. Negative interest rates do not loosen reserve requirements. They do not loosen lending standards. They do put downward pressure on the host country's currency, perhaps less so for the United States, due to the level of global anxiety. They create a "race to the bottom" for currencies and interest rates that is structurally unhealthy. Now compare that to doubling or tripling SBA loans and weigh the risks.

>"About 80% of small business loan applications in the US are denied."

Wow, I thought 80% was an overstatement. You are very much correct with regards to the "big" banks.

See: "big banks – that is, banks with $10 billion or more in assets – approved of 21.3 percent of small business loan applications in January 2015, up from 21.1 percent the month prior" [0]

Not the world's greatest source, but informative none the less: [0]: http://www.pymnts.com/news/b2b-payments/2015/big-bank-backed...

Even worse... a huge portion of loans to small businesses are made through secondary lenders charging 10-28% on the money. This debt burden increases default risk at the same time as it decreases additional investment.

Also, that's 80% of official applications. Countless others were given soft nos - "don't bother applying as a start-up/fico under 680/time in business under 3 years" etc.

Yup. Couldn't even get a LOC for $15k when we had cash reserves of $35k and 2 years in business making $250k/year because we wouldn't become personal guarantors on the loan and we were a risky startup.... that was cash finances, no debt....

Okay. I don't pretend to understand. (We wanted the line to service hard goods / inventory instead of cash servicing inventory, which is a standard retail tactic. Oh well.)

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