Posts Tagged ‘Small Business Access to Capital’

FT Headline: “Small Businesses Lose Out”

Monday, July 12th, 2010
Poor Marks for Banks

Poor Marks for Banks

When the lead headline on the front page of the Financial Times announces the crisis in small business capital access, the problem can no longer be ignored. Under the headline “Small business lose out” follows an article summarizing the data presented in the “Terms of Business Lending” survey released this week by the Federal Reserve Bank. The survey collects quarterly data from 348 U.S.-chartered commercial banks and 50 U.S. branches of foreign banks. The survey found that interest rates on small commercial and industrial loans were 3.5% higher than the federal funds rate (the rate at which banks borrow to on-lend to customers), the highest spread since the Fed began the survey nearly 25 years ago. It seems that every policy initiative to motivate large banks to unblock the flow of credit to the small business sector, including the Troubled Asset Relief Program, has failed.

Perhaps this is why the Obama administration’s legislation to create a $30 billion small business lending fund has just cleared the Senate with negligible opposition. To accelerate the bill’s passage, Senate Majority Leader Harry Reid blocked any effort to tack amendments onto the bill, limiting the Congressional debate to the matter at hand. The fund would offer reduced capital costs to community banks commensurate with their growth in small business lending – a carrot that was missing in TARP. Other restrictive elements of TARP, such as preferred warrants, are not part of this legislation, which should speed its passage. But if banks continue to believe that small businesses are poor risks in this recession, the carrots might not have the desired effect.

U.S. Chamber of Commerce Addresses Taxation

Friday, May 14th, 2010
Small Business is Big Business

Small Business is Big Business

The U.S. Chamber of Commerce issued a statement on access to capital for small businesses directed to the Congressional Committee on Small Business, the Subcommittee on Finance and Tax. The statement sets forth two policy recommendations that are particularly important at this time. First, Congress passed legislation calling for a 3% tax withholding on all government payments, which affects government contractors. While the requirement will not go into effect until January 1, 2012, businesses and federal, state and local governments are spending funds to prepare for its implementation, which expenses the Chamber believes to be unnecessary for a requirement that should be repealed. The Defense Department estimates the cost of compliance with this requirement to be $17 billion over the first five years, exceeding any forecasts of revenue gains. For small businesses that contract with the federal, state and local governments, this onerous requirement should be repealed. Second, the Chamber argues against raising tax rates, reminding Congress that many small businesses are organized as Subchapter S corporations or sole proprietorships, such that increases in personal tax rates increase their cost of capital. This would reduce capital available to reinvest in small business at a time when banks have already choked back on lending to this sector. The Chamber of Commerce represents more than three million businesses in the U.S., of which 96% have fewer than 100 employees. Let’s hope that Congress acts on the Chamber’s recommendations.