WASHINGTON, D.C. - The credit crisis limiting the ability of small businesses across the country to expand operations and hire new workers was the topic of a Senate hearing today. The U.S. Senate Banking Subcommittee on Economic Policy, chaired by U.S. Sen. Sherrod Brown (D-OH) held a hearing entitled "Restoring Credit to Main Street: Proposals to Fix Small Business Borrowing and Lending Problems."
"It is no secret that roughly two-thirds of jobs in this country are created by small businesses, and it is clear that we must once again rely on the engine of small business growth to move us down the path to full recovery," Senator Brown said in his statement today. "Unfortunately, banks have drastically reduced lending, and small businesses do not have access to the credit they need to expand and hire new workers."
Testifying at today's hearing were U.S. Sens. Carl Levin (D-MI) and Debbie Stabenow (D-MI); Mr. Rick Gillet, President, Sutton Bank (Attica, OH) on behalf of the Independent Community Bankers Association; Mr. Arthur Johnson, on behalf of the American Bankers Association; and Mr. Raj Date, Chairman and Executive Director, Cambridge Winter Financial.
Small businesses create 64 percent of jobs across the country, but are struggling to access the credit they need to expand operations and hire new workers. While the credit crisis has helped large banks lend to one another, outside lending has declined for six consecutive quarters, according to the Feb. 23 report from the Federal Deposit Insurance Corporation (FDIC). Total bank loans and leases declined for the sixth straight quarter, with total loans to commercial and industrial borrowers declining 4.3 percent and real estate construction and development loans declining by 8.4 percent.
A new survey, released on Feb. 23 by the National Federation of Independent Business Research Foundation, further underscores the challenges faced by small businesses in accessing credit. The survey found that the most common reason businesses sought loans in 2009 was to meet cash flow needs. Businesses were more likely to attain credit if they had higher credit scores, more properties collateralized for business purposes, and if they borrowed from banks with less than $100 billion in assets. Of the businesses that sought loans in 2009, only forty percent had all of their credit needs met, 10 percent had most of their needs met, 21 percent had some of their needs met, and 23 percent had none of their credit needs met. The current level of borrowing success is significantly lower than in the mid-2000s when up to 90 percent of survey respondents had their most recent credit request approved.
The hearing examined a number of solutions proposed by the Obama Administration and Congress. These include the establishment of a $30 billion small business lending fund that would provide capital to community banks and other small financial institutions, the expansion of loan programs administered by the Small Business Administration (SBA), the creation of a small business hiring tax credit and other tax incentives, and collateral assistance for small businesses and manufacturers.
As Chairman of the Senate Banking Subcommittee on Economic Policy, Brown held a series of hearings examining ways to restore credit to small businesses and manufacturers. Today's hearing follows a series of hearings held by the subcommittee on job creation and access to credit. Previous hearings include: (1) "Lessons from the New Deal", exploring how to apply New Deal era strategy to today's economy, (2) "Manufacturing and the Credit Crisis," evaluating challenges manufacturers face in the current recession; (3) "The U.S. as Global Competitor: What Are the Elements of a National Manufacturing Strategy", examining how best to establish a national manufacturing policy; (4) "Restoring Credit to Manufacturers," investigating the challenges U.S. manufacturers face in the current recession; and 5) "Weathering the Storm: Creating Jobs in the Recession." outlining priorities to stimulate job growth and expand manufacturing.
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