Small Businesses, Lenders Tell Congressional Panel Credit Gaps Remain

Witnesses from the IFA and other organizations testifying at a House Small Business Committee hearing Wednesday told lawmakers that a harsh regulatory environment continues to restrict access to credit for small businesses.

“What we found is that the FDIC regulators are inconsistently applying regulations throughout the banking community,” said Lynn Ozer, executive vice president of Susquehanna Bank in Pottstown, Pa., representing the National Association of Government Guaranteed Lenders. “That is what has been reported to the trade association.”

IFA’s Credit Access Task Force Chairman Bill Hall, CFE, a five-unit Dairy Queen franchisee, said that without additional access to  credit, he will lose customers in the highly-competitive quick service restaurant industry. “I need to borrow money to renovate my stores just to keep up with the competition,” he said. “Otherwise I’ll go out of business.” For the first time in his life, he said, he will seek an SBA loan, because commercial credit is so tight.

Hall was invited to testify on behalf of IFA’s 825,000 franchise establishments across the United States that  account for nearly 18 million jobs.

Rep. Allen West (R-Fla.), who arrived at the hearing from a meeting at the White House with President Obama and Treasury Secretary Timothy Geithner, pressed the panelists about what Congress can do about the gaps in the credit market.

“I want to know if banking regulators are causing this hang-up and what we can do about it. Are borrowers and bankers being inconsistently treated by regulators?” West asked.

“With nearly 14% unemployment in my district, I’m concerned about the small guys getting credit,” said Rep. Jaime Herrera Beutler (R-Wash.). “It’s the quickest way to get job growth in our economy. We have to support small business.”

Government and industry statistics indicate that SBA loans have provided a lifeline to small-business growth over the past year. But lenders say those loans may be discouraged by regulators.

“There is a bias against SBA loans by regulators,” said Ozer. “They [SBA loans] are sometimes put in a high-risk category, which affects how reserves are calculated.”

IFA, NAGGL and the Consumer Bankers Association, which also testified at the hearing, are ramping up efforts to call attention to the problem. The message resonated with some lawmakers.

“Banks in my district had nothing to do with the financial crisis,” said Rep. Mike Coffman (R-Colo.). “They think there was an overreaction by regulators.”
Some Committee members echoed the IFA’s call for increased credit flow to franchising.

Rep. Mick Mulvaney (R-S.C.), a former franchisor and franchisee in the restaurant industry, said, “There is pent-up demand out there for growth,” Mulvaney said. “This is the way to create jobs. If financial regulators are impeding that credit flow, we need to do something about it.”

Full video of the hearing is available on the Committee’s YouTube page

Posted by Matt Haller, IFA Director of Communications