News From the
Committee on Small Business
Nydia M. Velázquez, Chairwoman

For Immediate Release                                                       CONTACT:  Alex Haurek; Duncan Neasham
June 10, 2009                                                                                                                 (202) 226-3636

In Midst of Recession, Small Firms Struggle to Find Credit
With Lending Down, Lawmakers Mull Changes to Help Businesses Find Capital

WASHINGTON, D.C. — Despite progress made since the enactment of the American Recovery and Reinvestment Act (ARRA) in February, small businesses continue struggling to access capital in the face of the worst credit crunch in recent history, witnesses told a Congressional panel today. During a hearing before the House Committee on Small Business, small business lenders and entrepreneurs testified about the obstacles that continue to block small firms from borrowing the funds or raising the investments they need to create jobs and help lead the nation’s economic recovery.

“From the start-up in Silicon Valley to the mom and pop restaurant on Main Street, small businesses everywhere are struggling to find the capital they need to keep their doors open,” said Rep. Nydia M. Velázquez (D-NY), the Chairwoman of the House Committee on Small Business. “While the Recovery Act took important steps to help fix the credit markets, entrepreneurs still can’t find the loans they will need to get the economy moving forward again.”

Lawmakers noted that the Small Business Administration (SBA) financing programs, which are intended to help small businesses access affordable capital, have not played their traditional role of providing an alternative when private capital is scarce. Lending from the SBA’s flagship 7(a) program has dropped by 50% and, at the current rate, the SBA will back $5 billion less in loans than it did in the previous year.

“Eight years of inept management and underfunding have come home to roost at the SBA, preventing the agency from stepping up when we need it the most,” Velázquez said. “In the last four recessions, the SBA played a vital role in helping firms find the capital they needed to bounce back. That’s not happening in this downturn.”

Velázquez said that, as the Committee moves forward to help small businesses, it would take a broad approach, reviewing all of the programs at the SBA that are designed to facilitate entrepreneurs’ access to capital. Given that many small firms have extremely restricted options when it comes to lending, Velázquez called for enhanced competition in the small business lending market. Lawmakers also said that solutions to the capital market problems would need to address obstacles at every level, from start-ups seeking private equity investments all the way down to self-employed individuals seeking a few thousand dollars to start a home-based business.

“Ultimately, the full range of small business capital needs must be met – from the micro-borrower who needs a few thousand dollars to the high-growth company seeking equity investment,” Velázquez said. “All options are on the table: where we can enhance existing initiatives, we should do so. But, when programs no longer work, they must be replaced with measures that do meet small businesses’ needs.”

Today’s hearing lays the groundwork for future oversight of SBA financing programs, as well as possible legislation to improve the flow of capital to small businesses. While the Recovery Act has helped spur some new lending to small firms, the SBA still has to implement half of the capital provisions that Congress instructed the agency to administer.

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Click here to view video from today’s hearing.