More needs to be done to Unfreeze Credit and Help America’s Small Businesses Obtain Loans
The former SBA chief, Karen Mills, has recently released her third article on the availability of capital to assist small businesses and help them not only recover from The Great Recession, but expand and create more jobs. Without access to capital, America’s small businesses are unable to create much needed employment and recovery is being severely hampered by the lack of available funds.
When the Great Recession hit, banks all but shut up shop and froze credit lines. Access to the finance that small company desperately needed to survive was simply not available. Small business loan applications were being rejected in record volumes which spurred the government to step in and take prompt action to help businesses and unfreeze the credit markets. The legislation and regulatory changes introduced during the recession did prove to be successful, yet today these initiatives are now believed to be having an adverse effect on small business lending and a regulatory overhang is putting considerable pressure on the small business credit market.
Measures introduced by the U.S government to improve small business lending and unfreeze credit lines centered around three new legislative acts which were intended to drive forward the economic recovery of the nation; The American Recovery and Reinvestment Act was passed by congress in 2009, The Small Business Jobs Act in 2010 and most recently in 2012, Congress passed the Jumpstarting our Business Jobs Act (JOBS). These acts were largely successful in improving access to SBA funding and provided small business tax relief options. They also helped open up more options for crowd-funding with merchant advance funding solutions improving considerably.
In Mills’ third article in her series she makes it clear that the actions of the U.S. Government were pivotal in preventing the recession from being much more severe than it actually was, and without the above legislative acts, more small businesses would have failed. The banks would not have made anywhere near the number of small business loans that they did during this period. Yet currently there are still many gaps in the small business credit market and these gaps need to be plugged. She believes the U.S government can certainly do more to improve financing for a small business and make more small business loans available.
Industrial equipment financing for example is still difficult to attain, making it hard for small businesses in the manufacturing sector to expand, obtain new contracts and create new jobs. Mills proposes that the government could take steps to meet the scale-up needs of new advanced manufacturing companies.
If more industrial equipment financing options were available, pilot plants could be established and new operations could be constructed, helping to create swathes of new jobs which in turn would really drive the economy forward. To achieve this, the successful loan guarantees that spurred the banks to make more loans during the recession – especially to underserved segments – could continue to be provided and other tools which have proven to be successful over the past four years could used to help clear the small business financing market.
The initiatives put in place were never intended to be permanent solutions to improve small business loan approvals, and the level of risk involved in continuing these is high. One solution that has been proposed is for the government to partner with investors and lenders from the private sector in order to improve the options for financing a small business. By doing this, Mills believes that economic growth could be enhanced not only locally but also on a regional and national level.