Posts Tagged ‘Small Business Access to Credit’

Small Business Financing Forum

Tuesday, December 1st, 2009
Small Business Financing Forum

Small Business Financing Forum

U.S. Treasury Secretary Timothy Geithner, Federal Deposit Insurance Corp. Chair Sheila Bair and U.S. Small Business Administration head Karen Mills co-chaired the Small Business Financing Forum in which the usual sound bites were offered about the importance of small business to the U.S. economy: the “engines of job growth”, support the tax base, lead the country out of recession, etc. etc.  Geithner stated that small businesses are more vulnerable to banking crises, as 90% of them obtain their credit from banks as compared with 30% of large corporations. As small businesses have fewer capital resources to work through a credit drought, they paid dearly for the errors of the banking sector and the government. Geithner outlined the Obama Administration’s six-step plan for help small businesses access credit:

  1. Provide direct support through the Recovery Act to promote government loans guaranteed through the SBA. I have already blogged about why this approach won’t work.
  2. Support small business lenders by providing low-cost capital to community development financing institutions.
  3. Repair securitization markets by promoting the Term Asset-Backed Securities Loan Facility program to lower the interest costs on asset-backed loans.
  4. Provide guidance to lenders. This appears a polite euphemism for the process by which regulators browbeat the banks they supervise. It hasn’t worked yet.
  5. Support government programs by lending agencies like the U.S. Export-Import Bank. Unfortunately, such programs are welfare for large corporations that can secure credit and insurance through the private sector.
  6. Exert pressure on banks to use federal assistance programs. The Administration apparently believes that the top 19 banks that received TARP (Troubled Asset Relief Program) aid should participate in SBA lending programs. Unfortunately, SBA lending programs don’t meet the credit needs of most small businesses. The increased guarantees on the loans simply mean that the taxpayers will bear more losses for inexperienced banks to move up the small business credit learning curve. This is a terrible idea.

To watch the video of the U.S. Treasury Secretary’s presentation, click here.

Proposed Financial Sector Reform

Thursday, July 9th, 2009
Small Business and Big Government

Small Business and Big Government

According to the New York Times, President Obama sought a wide range of views on finance rules, consulting with, among others, top executives from Goldman Sachs, Metlife, Allstate, JPMorgan Chase, Credit Suisse, Citigroup, Barclays, UBS, Deutsche Bank, Morgan Stanley, Wells Fargo, Travelers and Prudential. It does not appear as though any representatives from small businesses were given the opportunity to have input, although the Administration has consistently acknowledged that we account for over one-half of the economy and all net job growth. The Administration released an 85-page white paper, outlining its proposals to reform financial market regulation. Various proposals were put forward for an expanded role of the Federal Reserve Bank, new bank loan loss reserve accounting, the elimination of the Office of Thrift Supervision and other matters. But what was missing was a consideration of the ultimate goals of regulation: to ensure the safety and soundness of our financial system while maintaining access to a multilayered system. The access part is missing from the Administration’s proposal, save for a cursory mention of the requirements of the Community Reinvestment Act.

South Africa’s Centre for Financial Inclusion described the phenomenon of regulatory drift: first, markets grow and become more sophisticated and complex. When market failure occurs, regulators impose costs and barriers that foreclose market entry for the less advantaged. This result occurs in part because of the regulators’ emphasis on stability over access. This was the unintended result of anti-money-laundering and anti-terrorist financing regulations, which had the consequence of slowing remittances upon which many poor people in the developing world depend.  The emphasis of stability over access also contributed to choking the flow of credit to smaller businesses in the U.S.  The omission of the financial access issues of smaller businesses is all the more significant given that the Administration has publicly identified this issue as a priority.