WASHINGTON – On the heels of news this week that about one third of the U.S. banks surveyed by the Federal Reserve have recently tightened their lending standards for loans to small businesses, Senator John Kerry (D-Mass.), Chairman of the Committee on Small Business and Entrepreneurship, announced he will introduce legislation to reduce loan costs and help more entrepreneurs access the capital they need to start and grow their businesses. Fed data shows that many lenders, nervous about the economy and more risk averse, have increased their credit standards for small business loans at a rate not seen since September 11, 2001, making it harder and more expensive for small businesses to get loans.

“We’re seeing the mortgage crisis have a ripple effect that’s preventing many small business owners from getting loans they need to create jobs, grow their businesses and spur the economy,” said Kerry. “This is precisely the moment when we need Washington to pick up the slack, but instead we’ve seen lending in the government’s largest program drop by 14 percent compared to last year. By reducing loan fees we’ll increase access to capital, make it more affordable, and keep small firms on the path to creating two-thirds of all new jobs in our communities.”

The Fed’s data mirrors cutbacks in government-backed loans to small businesses. Loans are down 14 percent from this time last year in the largest small business loan program known as 7(a). Express loans — which are approved in weeks, not months, and therefore reflect current economic conditions more accurately — are down about 23 percent. The 7(a) lending program is the largest source of long-term capital to small businesses in this country.

A significant portion of banks surveyed by the Fed report that they are widening the spreads on interest rates for loans to small businesses, making them more expensive. In addition, 80 percent of U.S. banks have tightened loans for commercial real estate purchases, which will likely also impact small businesses seeking to expand their fixed assets through the government-backed 504 loan program.

Kerry’s legislation will help small businesses combat the tightening credit markets by cutting loan fees on government backed 7(a) loans to small businesses by $150 million. Last year, nearly 100,000 businesses received 7(a) loans, which created or retained over 624,000 American jobs. Yet, President Bush’s proposed budget for next year, released yesterday, contains no funding for this important program and raises the fee on lenders. Kerry will also explore legislation to reduce costs of fixed asset loans.

To read the Fed’s report, visit: http://www.federalreserve.gov/boarddocs/snloansurvey/200801/fullreport.pdf