Senators Urge Administration to Work Aggressively to Unlock the Small Business Credit Crunch
Michael Bennet and Mark Udall, U.S. Senators for Colorado, are pushing the Obama administration to support Colorado's - and the nation's - struggling small businesses by unlocking the credit lines typically offered by small, independent and community-based banks.
Bennet, a member of the Senate Banking Committee, and Udall joined 32 colleagues in sending a letter to President Obama urging him to set aside unused Troubled Asset Relief Program (TARP) funds in order to create a loan pool for small business lending.
"Washington needs to focus on the economic well-being of Main Street-not just Wall Street," Bennet said. "Across Colorado, small businesses are struggling to get access to credit they need to invest, grow, or even make payroll. If small businesses lack access to credit, we won't be able to turn around our economy and create jobs."
"Small businesses are the heart of our economy, but small business owners from across Colorado are telling me that they are still struggling to access lines of credit they rely on," Senator Udall said. "If we're going to rebuild our economy, we have to unlock the credit market so businesses on Main Street can make payroll, buy inventory and create jobs again."
In the letter, Bennet and Udall pushed for a "targeted program that will jumpstart small business lending without harming the capital position of banks."
Below is a full copy of the letter:
Dear Mr. President:
Our economy remains fragile as unemployment rises and business activity struggles to recover. Over the past 15 years, 64% of the net jobs created have been created by small businesses, and those businesses employ more than 50% of our American workers. TARP was originally intended to help Main Street by saving Wall Street. We see continued evidence that Wall Street has been stabilized, but to date it seems that Main Street continues to struggle to create new jobs.
Each of us has heard from small and medium sized businesses which, due to a lack of credit, continue to struggle and are unable to invest in inventory, employees or growth. Recently, these concerns seem to have grown. While we want banks to improve their strength, the loss of credit being driven by banks rebuilding capital and disappearance of the shadow lending system is crippling businesses and the capacity of our economy to create jobs.
We believe there is need for a targeted program that will jumpstart small business lending without harming the capital position of banks.
In order to achieve that goal, we propose that Treasury re-obligate a portion of existing TARP funds in order to create a loan pool specifically for small business lending. If we pooled $40 billion and leveraged an additional $5 to $10 billion contributed by participating banks we could make $50 billion in credit available.
Individual banks would be required to place some of their own money at risk, perhaps accounting for 10% or 20% of the lending, which will further compel them to make responsible lending decisions and maximize the potential impact of this loan pool. All banks could participate and would be incentivized to do so through fees and interest generated by the loans. Community banks would be uniquely competitive in this program because they have maintained small business lending capabilities and are most likely to know the entrepreneurs, business owners and customers within their communities.
We believe that Government funds should remain off-balance sheet so banks cannot use the funds simply to bolster their own capital. Additionally, funds should be time-limited and restricted to operating companies - not real estate development companies - which will ensure that these funds quickly reach those business owners who need it most. We believe it may also be useful to set any loan limits well above those used by SBA in order to ensure that businesses too large for SBA but too small to directly access credit markets will have access to desperately needed funding.
Banks that are awarded management of loan pool funds should make lending decisions, subject to fraud prevention oversight. Treasury would serve as the primary sponsor of the program, but rely upon SBA and Federal banking regulators for technical advice, oversight capabilities and delivery capability.
To ensure independence, we request that you include appropriate protections to prevent political interference in lending decisions.
We believe that an additional $50 billion in loans to small businesses, primarily through our community banks, would both refocus the TARP to help Main Street and lead to more job creation. This crisis continues to require complex policy responses and we understand that establishing a program like this may not allow all of the suggestions here to be included. However, this is a potentially significant emerging threat to our economy, and we stand ready to assist you and your Administration in developing a program to address the credit needs of American businesses.