Good afternoon. First, I would like to thank Governor Mishkin from the Federal Reserve Board, SBA Administrator Preston—and all of our other witnesses—for taking time out of their busy schedules to testify on the spread of the credit crunch and its impact on small businesses.
There’s evidence that the credit crunch triggered by the subprime mortgage crisis has spread from Wall Street to Main Street. In its most recent survey of banks, the Federal Reserve found that almost one-third of the nation’s lenders have tightened their lending standards for small business loans. Today, the National Small Business Association released the results of its annual survey, which showed that 55 percent of small businesses surveyed said they have faced difficulty obtaining a loan due to the credit crunch.
The continuing decline in home values has made matters worse. Approximately 30 percent of all small business owners rely on home equity loans to finance their small business operations. But as home values decline, many of these entrepreneurs must find alternative financing sources. Some of them will be forced to use high-rate credit cards, while others will have to delay or even cancel planned investments. That means missed opportunities—not only for small businesses—but also for job growth in our ailing economy, which has shed over 230,000 jobs since January.
Theoretically, the SBA’s loan programs should play a key role in filling the gaps left by a tightening credit market. However, that hasn’t occurred this time around: SBA loan activity is down program-wide. Activity in the SBA’s 7(a) loan program—the largest single source of long-term capital for small businesses—appears to be in a free fall. The number of 7(a) loans approved by SBA lenders has decreased by about 18 percent compared with the same period last year. In terms of dollars, the 7(a) program is down by over $641 million, a decrease of almost 10 percent. The sharp decline suggests to me that changes—whether temporary or permanent—are warranted to help stimulate SBA lending and provide more small businesses with the financing they desperately need.
Over the past few months, members of this Committee have proposed several measures to provide stimulus to the SBA lending programs. In January, I introduced the Small Business Stimulus Act of 2008, which was co-sponsored by Senators Levin and Landrieu. The bill would boost 7(a) loan activity by reducing the lender and borrower fees charged by the SBA, and would provide much-needed support for the SBA’s successful microloan program. In February, I introduced a modified stimulus bill, which added provisions aimed at increasing loan activity in the SBA’s 504 loan program. I also joined my colleagues Senators Landrieu and Coleman, in cosponsoring a bill introduced by Ranking Member Snowe, which included changes to the tax code that would benefit small businesses. And although the President’s budget for next year would reduce SBA funding and raise lender fees to the maximum amount allowed, the budget measure approved by the Senate, if enacted, will increase SBA funding and could reduce the newly-imposed oversight fees for SBA lenders.
Unfortunately, the SBA has refused to take appropriate action to help small businesses affected by the credit crunch. That inaction stands in sharp contrast to the moves made by the Federal Reserve Board in recent months. Today, we will hear testimony from Governor Mishkin on the Fed’s latest actions, and how they might affect the state of the small business economy—especially the small business credit markets.
Our second panel of witnesses will provide first-hand accounts of the tightening market for small business loans. I also hope they will tell the Committee what steps can be taken to stimulate SBA loan activity because, as we move forward, I will be drafting new legislation to address the issues discussed at today’s hearing. I believe that this hearing and the legislation that grows out of the testimony we hear today will be a significant step toward getting our small businesses and our economy back on track. I look forward to working with Ranking Member Snowe—and Administrator Preston—to make that happen.
Unfortunately, our Ranking Member had a prior commitment that will delay her arrival at the hearing, so I turn now to Governor Mishkin for his statement.