House Small Business Committee Chairman Sam Graves (R-MO) today held a full committee hearing to examine access to capital needed by small businesses to grow and create jobs. Small business owners and bank lenders testified to the many challenges they are facing when deciding to expand or to lend money. “For small businesses to expand and create jobs— they need adequate financing,” said Graves. “However, a lack of economic confidence coupled with the new, cumbersome and inconsistent lending requirements is leaving many business owners unable to obtain the capital they need just to stay in business. On the other hand, in the wake of the financial crisis, lenders want to ensure their customer is credit worthy. “Small businesses are our best job creators and they are the linchpin that will lead our economy back to prosperity. We need to provide economic and regulatory certainty to allow businesses to thrive. At the same time, we must open the doors for alternative finance options such as, venture capital, angel investing, and private equity to help bridge the divide between small business owners and lenders to spark growth in our economy.” To view Chairman Graves’ opening statement, witness testimony and related hearing documents, click here.
Notable Witness Quotes:
William Hall, CFE/CEO of William G. Hall & Co., (franchisee of 5 Dairy Queen locations) Fort Worth, TX, and testifying on behalf of the International Franchise Association, said, “With access to capital, franchising could be a true locomotive for local job growth. Franchise businesses are poised for stronger growth in 2011 than in 2010—2.5 percent according to the IFA’s 2011 economic forecast. While we estimate that franchise businesses will be able to access $8.4 billion in lending this year, this analysis also shows that we will face a $2 billion shortfall in available loans. This shortfall will result in a loss of nearly 8,000 franchise unit transactions, both new business development and transfers, and a loss of more than 82,000 jobs and $10.7 billion in annual economic output. If we close this gap and meet the full potential for growth, franchise businesses could create more than 332,000 new jobs and 41,000 new franchise establishments in 2011.”
Dr. Dennis Jacobe, Chief Economist at Gallup in Washington, DC, said, "[T]he value of housing and real estate normally plays a significant role in small business lending. Further, housing involves numerous small businesses. Stabilization and improvement of housing values would significantly enhance small business lending.” Jacobe went on to say, “[A]lthough many small businesses have found ways to operate within a high energy cost environment, high and volatile gas prices create major uncertainties for small business revenues and cash flows. Something needs to be done to stabilize energy prices.”
Lynn Ozer, Executive Vice President of Susquehanna Bank in Pottstown, PA, and testifying on behalf of the National Association of Government Guaranteed Lenders, said, “The combination of capital constraints and problem assets coupled with an enhanced awareness of the need for prudent lending in this economic environment has caused many lenders to become even more selective with their conventional small business lending. Loan underwriting standards are significantly tighter today than they were just a few short years ago. The result is that many creditworthy small businesses have difficulty accessing conventional loans to provide the capital that they need to grow their businesses, growth that is essential to the nation’s economic recovery.”
Robert Kottler, Executive Vice President and Director of Retail and Small Business Banking at IBERIABANK in Lafayette, LA, and testifying on behalf of the Consumer Bankers Association, said, “It is important to understand how a decline in sales and home values has affected small business lending. There are several considerations involved in underwriting a small business loan. Two of the most critical components are cash flows (historical and projected) and the value of the collateral. While banks have been more prudent with their underwriting, the decline in these two most important criteria - cash flow and home/collateral values- were reasons behind the reduction in lending. Couple that with an increase in capital requirements and regulatory uncertainty, and it is clear why the last few years have been so difficult, but we see things improving.”
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