Banks offering a second chance to create a first impression

Since the financial markets collapsed and the recession hit in December 2007, banks have toughened their borrowing standards. While small businesses have been affected the most by the tight credit lines, individuals with decent credit scores have suffered as well.

However, many bigger U.S. banks have now launched a "second look" program to review rejected loan applicants. Back in December 2009, President Obama met with bank execs and encouraged them to explore “every responsible way” to increase lending, according to a Bloomberg Businessweek article. The president said that the banks were obliged to help the borrowers after being rescued by the taxpayers. He asked them to “take a third and fourth look” at their small-business lending. The notion for the program seems to have come out of that meeting.

At Huntington Bancshares Inc., Columbus, Ohio, a second-look program and other efforts have boosted the approval rate for small-business loans by 4.7 percentage points in the first half of 2010, when compared with the rate for all of 2009, according to an article in The Wall Street Journal.

Bank of America Corp., J.P. Morgan Chase & Co., PNC Financial Services Group Inc., U.S. Bancorp. and other members of the Financial Services Roundtable, a trade group of 100 large financial companies, all have adopted the second-look program. At some banks the reviews are automatic for lenders who fell just outside of the bank's standards; borrowers also may request a review.

Bankers say the program is starting to have an impact. For example, August's Federal Reserve survey of senior loan officers showed the first overall easing of lending standards for small businesses since 2006, and part of it is due to the second-look program, according to the WSJ article.

Have you taken advantage of the second-look program yet?

The author is senior editor of Glass Magazine. Write her at smukerji@glass.org.