Small Business Financing Still Causing Concern
Jun 6th, 2011 | By Dawn R. Rivers | Category: Politics & PolicyLast week the House Committee on Small Business convened a hearing to re- examine the challenges facing small businesses looking for debt capital and banks looking for credit-worthy small business borrowers. The questions of the day were only what was expected: what is the status of the small business financing market and what can Congress do to help small businesses that need financing to expand and create jobs? Unfortunately, they ran into the catch-22 that we’ve been hearing about for a couple of years now. Small business owners say the banks aren’t lending. Banks say the small business demand isn’t there because consumer demand is weak and sales are down. There are also underwriting issues. Small business borrowers are not as credit-worthy as they were a few years ago (at least, not on paper) because their home values have declined.
Witness testimony bore down again and again on the point that one important factor that could go a long way toward solving the problem would be to stabilize the housing and real estate markets. Stabilizing those markets would allow home values to begin to recover and that would improve the situation for small business borrowers that need collateral. Besides that, recovery of home equity values would increase the net worth of most consumers and that would probably increase consumer confidence and consumer spending. And that seemed to be the bottom line: without consumer spending, small firms lack both the cash flow to service additional debt and the customer demand to justify expansion. After awhile, it all seemed to be a rather circular set of statements and assertions and questions that came down to getting more assets to consumers and more home equity to small business owners. How much the federal government can actually do about any of that is questionable.
