U.S. House Small Business Committee holds hearing on access to credit

Jan. 1, 2020
The House Small Business Committee held a full committee hearing titled, "Access to Capital: Can Small Businesses Access the Credit Necessary to Grow and Create Jobs?" The hearing provided a forum for lenders and business owners to discuss the curren

The House Small Business Committee held a full committee hearing titled, "Access to Capital: Can Small Businesses Access the Credit Necessary to Grow and Create Jobs?" The hearing provided a forum for lenders and business owners to discuss the current economic environment and what's being done to support private sector job growth.

Witnesses from the lending side discussed the demand for capital and current initiatives to encourage small business lending. Other witnesses reported about the current economic environment and the capital required to hire new workers.

House Small Business Committee Chairman Sam Graves, R-Mo., opened the hearing. He said, “As America seeks to recover from the worst recession since the Great Depression, we will be relying on our nation’s small businesses to help lead the way. For businesses to expand and create jobs, they need adequate financing. However, small businesses are telling us that access to capital remains a hurdle in the current economy, despite rallies on Wall Street and government efforts to loosen credit.

On the other side of the equation are lenders who say they have capital available, but businesses are not as credit-worthy as they were just a few years ago. Banks claim that today’s borrowers have lower credit scores and lower collateral values due to depressed real estate values.”

Lynn Ozer, executive vice president of Susquehanna Bank, Pottstown, Pa., testified during the hearing on the importance of bank lending’s role. “This growth in the 7(a) program is essential to keeping credit flowing to small businesses because the program fills a critical gap for those businesses, particularly startup and early-stage companies that need access to longer-term loans,” he said. “The Small Business Administration, through its private sector lending partners, accounts for well over 40 percent of all long-term small business loans made in America, making the agency the single largest provider of long-term capital to U.S. small businesses.”

 

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To emphasize the fall in lending, Ozler quoted the Quarterly Banking Profile, indicating the Federal Deposit Insurance Corporation (FDIC) reported that for the first quarter of 2011, “Total loan and lease balances continued to fall, declining $126.6 billion (1.7 percent). This is the fifth-largest quarterly percentage decline in loan balances in the 28 years for which data are available, and it marks the 10th time in the last 11 quarters that reported loan balances have fallen (the one exception was caused by the implementation of Financial Accounting Standards Board (FASB) 166 and 167, which resulted in the consolidation of as much as $400 billion in securitized loans onto banks’ balance sheets in the first quarter of 2010). Although the total amount consolidated cannot be precisely quantified, the industry would have reported a decline in loan balances for the first quarter of 2010 absent this change in accounting standards.”

Another banking witness, Robert Kottler, executive vice president of Iberia Bank, emphasized the importance of the relationship between borrowers and lenders. “I would also stress that communication between borrowers and lenders is critical,” he said. “Borrowers and their banks should work hard to form and maintain relationships long before a specific loan request is made. The better prepared and knowledgeable a borrower is about the process and the lender about the borrower, the more successful the process. Small businesses and lenders alike need to work hard to bridge the divide in order to better understand one another with respect to credit needs and approval.”

To view information related to the Small Business Committee Hearing, including Graves’ opening statement and witness testimony, visit ASA’s legislative website at www.TakingTheHill.com.

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