A Congressional panel convened a hearing last week to explore ideas about how to improve the flow of capital to small businesses. Both Democrats and Republicans who sit on the House Committee on Small Business‘ finance and tax subcommittee agree that the levels of commercial and Small Business Administration-guaranteed lending have fallen, exacerbating an already significant challenge for small- and minority-owned firms.
Noting that in previous downturns the SBA has stepped in to help fill in lending gaps, Rep. Kurt Schrader, who chairs the panel, said, “Unfortunately in this recession, the SBA’s capital access programs have been unable to fill their traditional role, leaving many small businesses with few options.â€ He added that a Federal Reserve survey found that 69% of domestic lending institutions have tightened lending standards and that venture capital has declined by more than 50% for two consecutive quarters.
Speaking on behalf of the American Bankers Association, William Humphreys, president and CEO of Oregon-based Citizens Bank, recommended that the Recovery Act provisions that increase the 7(a) program‘s loan guarantee level and decrease fees for borrowers and lenders be extended beyond the 2010 expiration date.
“The more we’re able to supply additional capital to our country’s small businesses, the better chance we have at keeping businesses alive. … Additional capital through lending will create an environment where small businesses will begin to rehire or add new jobs. Maintaining the 90[%] guarantee, with lower fee levels, through fiscal year 2012 will assist in that effort,â€ said Humphreys.
He also strongly recommended that when a company defaults on a loan, the SBA and the lender should work together to restructure the loan so that the company can remain viable. Currently, a borrower must liquidate before a bank can go after the loan guarantee, which may be the reason many lenders are reluctant to participate in the 7(a) program. “A guarantee doesn’t make a bad loan a good loan,â€ Humphreys said.