WASHINGTON, D.C. – The House Small Business Subcommittee on Economic Growth, Tax and Capital Access, under the chairmanship of Rep. Tom Rice (R-SC), today held a hearing to examine the current state of lending for small businesses and their access to functional capital.
Recently, there has been an increase in the number of small loans issued, with 1.7 million more loans under $1 million issued in the second quarter of 2013 than the same time period in 2011, but overall, the number of small loans has not returned to pre-recession levels. According to the Federal Deposit Insurance Corporation, the number of banking institutions in the U.S. has fallen to its lowest level since at least the Great Depression, and many of the smallest banks have merged or closed.
“This hearing provided a great dialogue about the various factors and economic trends affecting levels of lending to small businesses,” said Chairman Rice. “The fact of the matter is that small businesses can’t expand and create jobs if they don’t have access to working credit. Some of the reasons for this is market demand and fluctuating credit levels. However, Washington’s increased regulatory scrutiny is also proving to be a major factor to dwindling access to credit. Thankfully, new lending alternatives have become available for small businesses, but as our nation attempts to fully rebound from the recession and improve our global economic competitiveness, Washington must pull back on the onslaught of financial regulations, so that small businesses can access the credit they need to grow and create jobs.”
Fred L. Green, III, President and CEO, S.C. Bankers Association, Columbia, SC, said, “Banks understand regulation is necessary, but they also understand that burdensome regulation ultimately means they have fewer dollars to lend, which means less opportunity for businesses to grow and create new jobs. As a result local economies suffer and the national economy suffers along with them.”
Ann Marie Wiersch, Policy Analyst, Federal Reserve Bank of Cleveland, Cleveland, OH, said, “At the same time that fewer small businesses are able to meet lenders’ standards for cash flow, credit scores, and collateral, bankers have increased their credit standards, making even fewer small businesses appropriate candidates for bank loans than before the economic downturn. According to the Office of the Comptroller of the Currency’s Survey of Credit Underwriting Practices, banks tightened small business lending standards in 2008, 2009, 2010, and 2011.
“Bank consolidation has reduced the number of banks focused on the small business sector, and small business lending has become relatively less profitable than other types of lending, reducing some bankers’ interest in the small business credit market.”
Jeff Stibel, Chairman and CEO, Dun and Bradstreet Credibility Corp., Malibu, CA, said, “Given that in past economic cycles, small businesses were the primary driver of employment growth, we can infer from our results that the disconnect between business success and job growth is one of the reasons for the ‘jobless recovery.”
Renaud Laplanche, CEO, Lending Club, San Francisco, CA, said, “While traditional sources of capital have pulled back, alternatives are on the rise. Alternative lenders such as online lenders and merchant cash advance providers are the fastest-growing segment of the small business loan market – recording a 64% growth in originations in the last 4 years.”
Materials from the hearing are available on the Committee’s website HERE.
This release was prepared by the House Small Business Committee Communications Team.