great story — he lost his job, but he found his calling and started, you know, doing all kinds of work on a restaurant called the Blue Monkey, which now employs some 40 people in Pennsylvania’s Lehigh Valley.
That’s Carmen Jones’s story. Carmen is over there. Carmen was disabled in an accident a few years ago. And in facing personal trials, she discovered a reservoir of strength and an untapped market. So today she helps companies advertise and sell their services to people living with disabilities.
This is America’s story –- a place where we believe all things are possible; where we are limited only by our willingness to take a chance and work hard to achieve our dreams. But today, too many entrepreneurs can’t access the capital to start, operate, or grow their business. Too many dreams are being deferred or denied by a form letter cancelling a line of credit.
And this is a consequence of the credit crisis, which began when some banks bundled and sold mortgages in complex ways to hide risk and avoid responsibility. The collapse of these mortgage-backed securities and other complex financial instruments froze the credit markets, including the markets that help small businesses access loans to cover payroll, to purchase supplies, or to expand in ways that create new jobs.
And I think it’s important just to take a moment to understand — here’s how these markets work. A community bank, like the one run by Cynthia, offers an entrepreneur, like Marco, a loan to open up a restaurant. Before this crisis, Cynthia had two options. Her bank could hold the loan and receive regular payments from Marco as he pays back the amount that he borrowed plus interest. But another option was the bank could also sell part of the loan as an asset to a larger bank or to an investor. And that means that her bank could then use these new funds for more business loans and auto loans and home loans and student loans.
That’s why this secondary market — Cynthia’s ability to resell loans — is so important: It means banks can offer small businesses and families more credit because the bank has more money on hand. If Cynthia could get that $11 million of SBA loans that she currently holds in her portfolio, if she can get that into the secondary market, that’s now $11 million that she can make work back in her community.
Today, unfortunately, there aren’t nearly as many secondary buyers for these kinds of loans — even when they’re guaranteed by the Small Business Administration. So community banks cannot bring in the funds necessary to provide as many loans. And as a result, we’ve seen a precipitous drop in lending to small business.
The SBA typically guarantees $20 billion in loans annually. But this year, lending may fall below $10 billion. Even businesses with impeccable credit can’t access loans.
So entrepreneurs and their employees pay an enormous price. But the whole country pays a price, as well, because less lending leads to fewer jobs