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.
Thanks for the report.
The chairperson said that, “It is virtually impossible to get a clear assessment of these programs when we can’t collect good numbers.”
Sometimes, common sense has to tromp excel spreadsheets. Hello! Hello! This topic has been talked about, dissected and blogged about for two years!
It’s time to stop talking and trying to figure out “the numbers,” and find out from each lender what the main reason(s)are that they won’t lend to small businesses, especially start-ups.
Man, do I feel better now, Anita.
The Franchise King
I have to disagree with Joel. I think the numbers are crucial. The difference between a useful government project and bloat is accountability on all sides. If the program doesn’t tie metrics to evaluate how the program is being used, how are they expected to adjust for greater effectiveness? The lenders are not lending to small and start-up businesses because they can use the money to strategically grow their business in safer ways. The money did not have the appropriate conditions tied to it. I often hear people rail against “big government” as if the size of the government is what makes it good or bad. I have seen both over-regulation and de-regulation have a negative impact on small business. What I’d like to see is transparent, accountable, well thought out, and slightly flexible regulation. In other words, figure out what will work, map out how it will work, and execute properly. Isn’t that what we do every day as business owners?
I think that we’re both probably right.
Numbers and data are important, and I know that they set a benchmark for moving forward. My point is that after two years of this debacle, there’s been plenty of time to do some or all of the analysis that you’re referring to.
A financial planner told me two and a half years ago that the lenders have so much “bad paper” on their books, that it will take years for things to get back to normal.
He also told me that at least one major bank in my city (Cleveland) will go down. NCB is no longer. Ohio Savings is gone too.
The banks are sitting on a lot of cash. It’s obvious that they don’t need new deposits; that’s why they’re paying .50% on savings accounts.
Personally, I don’t need any more data than that.
They are not really lending much. They’re sitting. And waiting.
In the meantime, small businesses all over the US are hurting.
We must keep exerting pressure on the folks holding the money.
If things don’t turn around soon, we WILL have another recession.
The Franchise King
I put my trust in the free market economy and that the vendors of credit will fix this problem in the long run, if they are free to act in a good way.
I would be interested to see new forms of lending for small businesses, e.g., micro-loans, bartering and other types of exchange of values. The process of printing paper money (read fiat money) without any sound backing like precious metals, e.g. gold and silver, is dead wrong. I recommend you to read Today
Joel laid numbers and data are truly important when it comes to dealing and working with government small business financing. Banks are sitting on a bundle of cash and well not certain what environment they are waiting on but this is where government could provide a helping hand for small businesses.