In the latest move by a big bank to make itself into a friend to small business, Chase recently announced a program to offer incentives to small companies for hiring. But the actual benefit to most small businesses is hard to see.
Specifically, the bank will lower its interest rate on new lines of credit by 0.5 percentage points for each new hire, up to three employees, for the life of the loan. The offer is available to business owners who are approved for a line of credit of up to $250,000 or existing business customers who increase their line of credit by at least $10,000. And if you open a business checking account, you get an additional half percent discount on your loan rate.
A typical interest rate on a line of credit is 6 percent. According to the bank, if you choose the whole ball of wax – take the discount for three hires and open a checking account – you’ll lower that to 4 percent. And counting the discount for a new checking account, small business owners can save about $4,000 over three years on an outstanding balance of about $65,000.
Trouble is, that’s an offer most businesses are likely to refuse. Those already planning to hire and that are in good health might take advantage of the deal. In fact, they’d be silly not to. But the offer is hardly enough to inspire a business to hire if it wasn’t going to do so already.
What the offer might accomplish is to help Chase seem like a nice institution, not the greedy enterprise that helped bring down the economy. And it’s hardly the only attempt by Chase, or other banks, to do something to lift their image, something I’ve written about before. For example, last year, Chase unveiled plans to increasing lending to small businesses by $4 billion to a total of $10 billion. Bank of America recently said it would buy more from small businesses. In May, Citicorp launched a $200 million fund to boost small-business lending in low-income communities. And of course, last year, Goldman Sachs announced its own $500 million small-business fund.
It’s also a way to attract healthy businesses at a time when loan demand is down.
So a win-win for Chase. Not so much for small businesses.