Just Listen to Us
Policymakers continue to be frustrated by their inability to unblock the flow of credit to the small business sector. The President has put forward a $30 billion legislative package to offer incentives to community banks to lend to small businesses. While the measure has passed the House and is on its way to a Senate vote, there are doubts as to the efficacy of the proposed measures to stimulate lending. One critic expressing such doubts is Harvard Law Professor Elizabeth Warren who was appointed by Congress to oversee the $700 billion Troubled Asset Relief Program. In an interview with Bloomberg Businessweek, she stated, “policymakers are flying blind”, owing to a dearth of data on small business lending. While the original intent was that TARP recipients would on-lend some of their capital infusion from Washington to the small business sector, they have clearly failed to do that. The largest TARP recipients, those with assets in excess of $100 billion, reported 10% declines in small business lending from June 2008 to June 2009. (One bank has even offered rate reductions on its loans to small businesses that hire new employees.) But Warren is uncertain if the decline is the consequence of the banks’ reluctance to lend or the reluctance of credit-worthy small businesses to borrow. To remedy the data gap, the Federal Reserve Bank of Atlanta recently began a quarterly survey of small business lending in its region, in the hope that better data might craft better policies.
If we were not experiencing double digit unemployment even as viable small businesses that wish to hire are choked for credit, this would be funny. But what the monetary economists of the Fed and their academic advisors needs to do is to actually talk to a few small business owners. I am very active in entrepreneurial groups and the message I hear everywhere is the same. Those of us who own businesses that are credible candidates for loans are reluctant to borrow for fear of rising taxes, higher costs due to healthcare reform and other areas of uncertainty arising from government policies. Businesses generally prefer stable environments when taking on longer-term liabilities, such as loans. We are not close to having clarity on some very important tax and economic policies (yes, we know taxes will rise, but by how much?) that would enable us to see through the fog to determine how much debt we could prudently take on. This is the message that Washington needs to hear.
