The federal government’s attempts to improve small business access to credit have largely proved ineffective so far, says a report by the Congressional Oversight Panel.
“Although the Troubled Asset Relief Program (TARP) has launched several initiatives aimed at restoring general credit availability, the Panel found little evidence that the TARP has spurred small business lending,” says the report, The Small Business Credit Crunch and the Impact of the TARP.
Instead, the Panel found:
Small-business credit is still severely restricted. Lending plunged during the financial crisis of 2008 and stayed that way throughout 2009, Federal Reserve data show. Small businesses have been disproportionately affected by the decline. From 2008 to 2009, while big banks’ overall loan portfolios fell by 4 percent, their small-business loan portfolios dropped by 9 percent.
TARP has provided little help to community banks, which are the major source of small-business credit. As bigger banks pulled back lending, entrepreneurs turned even more to community banks-but those banks are struggling with a commercial real estate lending crisis that is hampering their ability to lend.
“If credit is unavailable, small businesses may be unable to meet current business demands or take advantage of opportunities for growth, potentially choking any incipient economic recovery,” the report warns.
Panel chair Elizabeth Warren said it’s hard to measure the effect of bailout programs on small business lending because banks were not required to account for how they used the bailout money. “It is virtually impossible to get a clear assessment of these programs when we can’t collect good numbers.”
The Panel called on Treasury to look for innovative solutions and to get more reliable data on small business lending. creative solutions that engage banks, state-based lending consortia, and other market participants, as well as to take active steps to gather more detailed and dependable data on small business lending.