Rice Subcommittee Analyzes Post-Recession Small Business Lending Environment
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. This is due to a confluence of factors including reduced levels of demand and creditworthiness of borrowers, increased regulatory scrutiny on banks, and consolidation in the banking industry. 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 limited access are 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.”
Materials from the hearing are available on the Committee’s website HERE.
Fred L. Green, III, President and CEO of S.C. Bankers Association in 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 at the Federal Reserve Bank of Cleveland in 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.
Jeff Stibel, Chairman and CEO of Dun and Bradstreet Credibility Corp. in 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 of Lending Club in 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.”