WASHINGTON -- Today Senator John Kerry (D-Mass.) pushed the Bush Administration to help small businesses access credit in the face of mounting evidence that entrepreneurs are being squeezed by fall out from the mortgage lending crisis. At a Committee on Small Business and Entrepreneurship hearing, Senator Kerry advocated for legislation to temporarily reduce fees for borrowers and lenders that would make financing more affordable and provide an incentive to banks and other lending institutions.
The ripple effects of the mortgage crisis are a threat to America’s small businesses, since approximately 30 percent of all small business owners rely on home equity loans to finance their small business operations. Additionally, a survey released today by the National Small Business Association revealed that the credit crunch is making it difficult for 55 percent of small business owners to get loans. Government-backed loans are down as much as 29 percent from this time last year.
“No one should dismiss the small business credit crunch as a small problem. The Bush Administration has refused to address the rippling effects of the mortgage crisis that’s now squeezing America’s small businesses,” said Senator Kerry, Chairman of the Committee on Small Business and Entrepreneurship. “I’ve heard from small business owners in Massachusetts who say that the fees on government guaranteed loans are too high, the paperwork’s too burdensome, and they have nowhere to turn because the Bush Administration isn’t holding up their end of the bargain. I’ve already introduced legislation and I’m considering additional proposals to make sure that entrepreneurs have access to affordable credit so that small businesses can continue to create jobs and grow our economy.”
Federal Reserve Board of Governors member Frederic Mishkin testified that credit standards have tightened for small businesses, making it more expensive and harder for small business owners to obtain loans.
“Perhaps one of the most important concerns about the future prospects for small business access to credit is that many small businesses use real estate assets to secure their loans,” said Mishkin. “Declines in the value of real estate assets held by banks and other lenders could affect their willingness and ability to supply loans, as real estate losses use up capital that could otherwise be used for making new loans.”
As of the end of March 2008, the number of loans in the government’s largest small business loan program – 7(a) – are down 18 percent from a year ago, and 7(a) express loans – which are smaller loans approved in days, not weeks and therefore more accurately reflect current economic conditions – are down 29 percent.
Senator Kerry has introduced legislation that reduces loan fees on 7(a) loans, and is exploring additional ways to stimulate lending to small businesses. Lenders and borrowers agree that reducing or eliminating fees would increase loans to small businesses. Senator Kerry’s legislation also allows small businesses to be able to refinance through the 504 (fixed asset) loan program and provides an additional $12 million for the microloan program.