|
NEWS RELEASE
March 19, 2009
ABA Media Contact: Peter Garuccio
(202) 663-5452
E-mail: pgarucci@aba.com
ABA TESTIFIES ON LENDING FOR SMALL BUSINESSES
WASHINGTON - The American Bankers Association testified today regarding the vital role that small business lending plays in local communities across the country.
In testimony delivered to the Senate Small Business Committee, ABA’s chief economist James Chessen said that given the state of the economy all businesses, including banks, are exercising more caution in taking on new financial obligations.
“Banks are looking carefully at the risk of a loan and re-evaluating the proper pricing of that risk,” said Chessen. “This is a prudent business practice and one expected by our bank regulators.”
However, he said that despite the tough economic environment and tighter lending standards, banks are continuing to lend and are actively looking for good loan opportunities.
Citing a March survey by the National Federation of Independent Businesses, Chessen noted that only 8 percent of small businesses reported problems in obtaining the financing they desired.
He also emphasized how the collapse of the secondary markets for mortgages and other consumer credit products has impacted small businesses.
“Large businesses go directly to the markets for funding rather than through banks, and most community banks are not involved in lending to large manufacturers or other large businesses,” he said. “However, community banks do lend to the small businesses that sell supplies and services to the large companies and because larger businesses do not have the short-term liquidity to meet their obligations, this reduces the flow of business to smaller businesses. Improving liquidity and funding for large corporations is critical to the economic health of smaller businesses.”
Chessen also stated that Congress’ continual support for the Small Business Administration’s (SBA) 7(a) lending program served as a solid launching pad for the Obama administration’s recently announced proposals regarding small business lending.
“Temporarily raising the guarantees to up to 90 percent on 7(a) loans will not only provide an incentive for banks to lend, it will also provide lenders with greater confidence to extend credit during these difficult economic times,” he said. “More importantly, it will provide start-up and existing business owners another avenue to access capital.”
Chessen also offered ABA’s support for the administration’s plan to temporarily eliminate fees on the SBA’s 7(a) and 504 lending programs and its plan to use up to $15 billion to purchase small business loan securities currently frozen on the secondary market.
“If the secondary markets for small business loans are frozen, lenders cannot free up capital to reignite lending for small business owners,” he said. “The effort by the administration to address this situation will go a long way to ensuring that SBA loans can start flowing through our communities once again.”
Finally, Chessen stressed that care must be taken not to impose overly conservative regulatory standards that may work to restrict credit to businesses and individuals.
“Just as too much risk is undesirable, a regulatory policy that discourages banks from making good loans to creditworthy borrowers also has serious economic consequences,” he said.
# # #
For a copy of Chessen’s full testimony click here
The American Bankers Association brings together banks of all sizes and charters into one association. ABA works to enhance the competitiveness of the nation's banking industry and strengthen America’s economy and communities. Its members – the majority of which are banks with less than $125 million in assets – represent over 95 percent of the industry’s $13.6 trillion in assets and employ over 2 million men and women.
| 
