Credit crunch raises concerns on capital availability for small businesses

The House Small Business Subcommittee on Finance and Tax held a hearing on “The Effect of the Credit Crunch on Small Business Access to Capital” to hear testimonials from small business owners, an independent community bank representative, and a credit union representative.

Chairwoman Melissa L. Bean (D-Ill.) said credit is harder to access now for small businesses. David Schroeder, president of the American Enterprise Bank, speaking on behalf of the Independent Community Bankers Association, said that “the current turmoil in our economic and financial markets nationwide raises genuine concerns about the availability of capital and credit for small business.” He suggested several policy recommendations to “ensure small businesses lenders and borrowers have an uninterrupted supply of capital,” which included strengthening the Small Business Administration (SBA) loan programs and enacting the “Small Business Lending Reauthorization and Improvement Act.”

Carl Sorgatz, president of Hawthorne Credit Union, speaking on behalf of the Credit Union National Association, disagreed with the availability of capital being the chief obstacle for credit union business lending, but rather the chief obstacle is “the arbitrary statutory lending limits imposed by Congress in 1998 and the burdens associated with many of the SBA lending programs.” He said Congress can help small business owners using credit unions by enacting any of the bills currently pending that “promote greater credit union participation in small business lending.”

Lawrie Hollingsworth, president of Asset Recovery Technologies, Inc. and speaking on behalf of the U.S. Women’s Chamber of Commerce, said that because of the credit crunch, money is less available, and that when it is available, “it is at a new premium and cost for less money and more restrictive lending covenants.” She has seen businesses choose to under-insure themselves to save costs, which she feels guarantees failure in the event of a disaster.

Vanessa Baugh, president of Vanessa Fine Jewelry, said that that she and other small business owners have “soft collateral” and can not get loans from banks. She said this forces them to rely on equity in real estate they own. She asked the committee to “hold the line on tax increases” so small business owners have an opportunity to grow their businesses, while at the same time asking to “enact business-friendly initiatives such as tax incentives for businesses who want physical and job expansion.” Ranking Member Vern Buchanan (R-Fl.) also said that higher taxes on individuals would have a high impact on small businesses.