The House Small Business Committee held hearings on expanding access to capital to small businesses suffering from the credit crisis.
Despite provisions in the stimulus bill signed by President Obama earlier this year that aim to open the tight credit market for small businesses, the Small Business Administration has been slow to implement many of them. Meanwhile, the SBAs main loan guarantee programs have fallen steeply during the recession.
"In previous recessions, the SBA has filled the gaps in private capital markets, said committee chair Nydia Velazquez, D-N.Y. Today that is not the case. Loans funded by the SBA's flagship program have seen double-digit declines, meaning, when we need the SBA to step in and help lift the capital markets, they are actually doing less. This is a result of poor policy decisions, inept management and a lack of funding at the agency over the last eight years finally taking its toll on the programs.
She noted that the SBA has not implemented over half of the provisions in the American Recovery and Reinvestment Act that Congress passed and the President signed. But, as more and more of these initiatives come on line, entrepreneurs should see an improved lending environment, she added.
The committee heard from representatives of various industries, including biotechnology. Douglas Doerfler, president and CEO of MaxCyte, a biotech company headquartered in Gaithersburg, Md., testified about how his 20-employee company has been faring, and the industry at large. He noted that 16 percent of the 394 public U.S. biotech companies that were active at the beginning of 2008 ended the year either in bankruptcy, restructuring, or suspended operations, with 7 percent of them acquired.
Holly Huels, chair of the National Association of Small Business Investment Companies, discussed the SBIC Debenture program, which she said was not being fully funded by the SBA despite returning $340 million in excess of the cost of the program back to the SBA. In a poll of her groups members, 100 percent of them said they had experienced banks pulling or reducing senior lines of credit.
Jean Wojtowicz, chair of the National Association of Development Companies, complained about the increased costs of the SBAs 504 loan program. She noted that her organization had just recently learned that the fiscal year 2010 budget will increase the cost of access to the 504 program for small businesses by 38.9 basis points per year. She believes the borrower fee for fiscal year 2011 is also likely to increase, and she asked Congress and the SBA to try to reduce the 504 program costs.
These cost increases will hit our potential new borrowers just at the time our national economy needs these companies to expand, create jobs and help pull the country out of the recession, she said. This seems to negate the benefits of the recently approved benefits through the stimulus bill.
Wojtowicz also criticized some of the SBAs recent restrictions. She wants the SBA to drop its plans to restrict 504 borrowers fromusing their personal home equity in 504 business expansion projects.She also recommended that the SBA should increase the maximum 504 debenture beyond its current limit of $1.5 million, allow borrowers to maximize use of both 504 and 7(a) loan limits for a single project, and eliminate regulations that restrict business owners with higher net worth from participating in 504 projects.
