Velazquez on "The State of Small Business Access to Capital and Credit: The View from Secretary Geithner"

WASHINGTON, June, 22, 2011 /PRNewswire-USNewswire/ -- Rep. Nydia M. Velazquez (D-NY), the Ranking Member of the House Committee on Small Business, delivered the following statement today at a hearing entitled "The State of Small Business Access to Capital and Credit: The View from Secretary Geithner":

"In early 2007, when the financial crisis began to emerge, no one could have predicted the economic damage that would follow.  For small businesses, the capital markets dried up, leaving many unable to find lines of credit.  To address this, actions were taken – many in fact led by this very Committee.  These measures were successful.  Thanks to these policy changes along with gradual -- although uneven -- economic improvement, small firms are now better able to secure capital than at any time since the heart of the crisis in 2008 and 2009.

"These more favorable credit conditions have been confirmed by both the Federal Reserve and the Thompson Reuters/PayNet Small Business Lending Index.  The Fed reported that a net 15 percent of banks eased terms, while the Thomson Reuters Index rose 17 percent in April from a year earlier.

This represented the ninth straight double-digit rise in the Index.  Even the NFIB's measure of credit conditions remains near a two-year high.  These are very positive developments since small firms have been all but locked out of capital markets for a long time.

"Unfortunately, while credit conditions have loosened for borrowers, we are not seeing corresponding increases in overall commercial lending.  In fact, lending is now below the level reached in June 2006, declining by $15 billion in the most recent quarter.  Total small business loans dropped 2.4 percent from $624 billion in December 2010 to $609 billion in March 2011. Small loans of less than $100,000 were down by 2.9 percent, while large loans outstanding declined by 2.2 percent.   From the broadest possible view, small businesses are getting less capital than they did 5 years ago.

"As demonstrated by the many hearings this Committee held in the last four years, the reasons behind this decline are complicated.  However, we do know that banks are flush with more cash than at any other time in history.  Banks are holding nearly $1.6 trillion in reserves at the Fed, of which only a small portion are required reserves.  This is nearly double where they stood just two years ago, when banks held only $900 billion at the Fed.   Clearly, liquidity is not a problem for lenders.

"With that in mind, today we will examine Treasury's SBLF program, an initiative designed to increase small business lending in one particular way – by increasing liquidity.   Only 847 banks applied for $11.6 billion from the Fund by its June 6th deadline – less than half of the $30 billion made available.  If liquidity was a problem, there would be a line out the door for SBLF funds, rather than the lack of interest we are now seeing from lenders.

"There are two areas in particular that I hope to review today.  The SBLF's lack of a requirement that its funds be used by banks to make small business loans undermines the supposed intent of the program.  Instead, the SBLF relies on loose incentives and non-binding plans to channel capital to small firms.  I do not believe this is enough.  The problem is compounded by the initiative relying on an overly broad and vague definition of 'small business.' So, when banks do lend, it will be virtually impossible to know if they are lending to 'true' small businesses or actually larger corporations.  

"During the debate to pass the SBLF, the rationale most offered by its proponents was that we needed to quickly put a policy in place and that the SBLF could be implemented within six months.  But here we are more than nine months after passage and not one single investment has been made in the nine months since enactment.  It could be several more months before any SBLF dollars make their way through banks and into the hands of entrepreneurs.  

"All of these issues are as relevant today as they were when the legislation was considered.  Therefore, I am very much looking forward to today's hearing and to understanding Secretary Geithner's perspective on these very issues.  Regardless of the approach, I think we can all agree that small businesses are critical to getting the economy back on track and to do so, we must make sure that they have access to affordable capital and credit.

"I look forward to the Secretary's testimony today and I yield back the balance of my time."

CONTACT: Alex Haurek, +1-202-225-2361

SOURCE Representative Nydia M. Velazquez, Ranking Member, House Committee on Small Business