AEO Partner Testifies Before House Small Business Committee on State of Small Business Lending, Cites AEO’s “Bigger Than You Think” Report

The House Small Business Committee, Subcommittee on Economic Growth, Tax, and Capital Access held a hearing on the ongoing challenges small businesses face when attempting to access to capital.  Subcommittee Chair Tom Rice (R-SC) opened the hearing noting that while small business lending has increased over the last two years, it still remains below pre-recession levels. A group of industry stakeholders, including a Policy Analyst from the Federal Reserve Bank of Cleveland, the President & CEO of Dunn & Bradstreet Credibility Corp (an AEO partner), the President of the South Carolina Bankers Association, and a representative from the National Association of Credit Unions.

Describing the general landscape of small business lending today, Ms. Ann Marie Wiersch of the Federal Reserve Bank of Cleveland, summarized recent findings noting that there are fewer small businesses attempting to access capital today than prior to the recession. She attributed this to a confluence of factors including: fewer credit worthy borrowers, increased lending standards (both as a result of Dodd-Frank requirements and banks’ internal policy decisions), small business lending less profitable than other forms of lending, and a perception among business owners looking for capital that credit is not readily and easily accessible.

Mr. Jeff Stibel, of D&B, discussed the disconnect between small businesses that are doing “well” but not hiring, which he attributes to the inability to access the capital needed to expand.  In his testimony, he cited AEO’s recent report, “Bigger Than You Think: The Economic Impact of Microbusiness in the US,” to show the incredible impact the nation’s small businesses have on employment and how important it is that they have access to capital to hire and grow. Using the story of a successful business owner who saw his line of credit rescinded during the recession and consequently went bankrupt to underscore the importance of access to capital, Mr. Stibel talked about how hiring new employees is an investment in the future, just the same as purchasing new equipment – without it, business cannot hire the employees they need to grow.  

Mr. Stibel also suggested that the varying definitions of micro- and small business continue to hamper policy discussions when it comes to addressing the problem of access to capital for entrepreneurs.  He would like to see one common definition used across sectors, which in turn would assist stakeholders when crafting policy solutions. 

Mr. John Farmakides, representing the National Association of Credit Unions (NACU), discussed a specific barrier credit unions face with respect to small business lending.  Although a recent survey of NACU members found a 35% rise in demand for small business loans, credit unions are hard pressed to meet that demand because of existing statutes.  Under current law, outstanding small business loans cannot exceed 12.25% of the credit union’s total assets.  This forces credit unions to pick and chose which small business loans to make, even though applicants may be credit worthy.  Mr. Farmakides encouraged the Committee to examine pending legislation, H.R. 688, that would raise the small business lending cap to 27.5% of total assets.  AEO supported similar legislation in the last Congress, and supports this legislation. 

A number of questions asked by the Subcommittee Members focused on the regulatory and compliance costs as a result of new rules required by Dodd-Frank on financial institutions.  Mr. Fred Green, President of the South Carolina Bankers Association, said that the new rules are forcing smaller lending institutions to shift resources from lending/loan officers to compliance staff – a particular burden for small and community banks. 

To watch an archived webcast of the hearing, and to read witness’ opening statements, please click here.

For background on the issues discussed during the hearing, please click here.