Business owners, bankers and federal officials have starkly different views on whether capital is readily available to small businesses, and among those who think the government must help bolster lending and investing, there is little consensus about the best approach.
It makes policy decisions awfully complex for those trying to revive an ailing Main Street.
“I’ll be honest, this is not an area where, when you go out and talk to the world, you hear the same thing,” Gene Sperling, director of the White House’s National Economic Council, said during a summit on capital formation this week at the Treasury Department. “Small businesses feel they are absolutely being denied the credit and capital they need, and large banks tell you they are looking for every small business they can find.”
Seemingly right on cue, other participants on the panel offered differing takes on the lending scene.
Beth Mooney, chairman of KeyBank in Cleveland, Ohio, said the recession-induced credit freeze has now eased so much there is a “frothy market” for commercial loans.
“I think it’s a bit of a myth that banks aren’t lending,” she said during the event. “Most companies who want credit and are creditworthy are having their capital needs met, to the extent it’s through a bank loan.”
Mooney pointed to new data released by the National Federation of Independent Business, which showed that the number of employers reporting difficulty securing a loan dropped to 6 percent in May, continuing a slow decline from a high of 11 percent in 2010. Credit woes were listed as the top challenge for only one in every 50 small business owners.
Any dearth in small business lending stems not from a supply shortage, she said, but from a scarcity in demand. In the past couple years, KeyBank has been aggressively pursuing local business prospects, but continued economic uncertainty has made many business owners think twice about taking out a loan.
“The tone of American business tends to be very cautious right now,” she said. “There is still a reluctance to borrow unless it’s absolutely the right thing to do or it’s against a very defined expansion, acquisition or new product line.”
Consequently, interest from banks is outpacing loan demand, often leaving employers with more negotiating power as banks compete for their business, Mooney said.
Jeanne Hulit, associate administrator for capital access at the U.S. Small Business Administration, offerred a more nuanced assessment. She said the“very frothy” credit market that existed prior to the recession “has not yet recovered” evenly for all businesses.
Hulit noted that outstanding small business loans have declined 17 percent since 2008. In total, that means banks have about $123 billion less in small-dollar loans (those of less than $1 million) on their books than they did before the recession. Even as the economy showed signs of progress this past year, that micro-lending gap has remained.
“The larger, more-established businesses seeking larger loans are definitely getting access to credit,” she said. “It is the smaller start-up businesses, the ones with under $1 million dollars in revenue, that are still significantly challenged.”
While small business loan demand may not have fully recovered, she argued, neither has the supply from lenders, especially for loans under $150,000.
“When you go to community roundtables,and you got out into underserved communities and the urban centers, you’re going to hear small businesses that are start-ups or very small that are not getting small dollar loans, even with an SBA guarantee.”
In order to pick up the pace of small business loans, she urged policymakers to take steps to lower costs for both banks and entrepreneurs, including a proposal to eliminate fees attached to government-backed loans of less than $150,000.
An investor on the panel pitched a slightly different solution to get more money in the hands of business owners: education and mentorship.
Mark Ein, founder of Venturehouse Group in Washington, said financing is readily available, both from traditional lenders and private investors, but he said many entrepreneurs simply are not prepared to seek it out.
The gap in the market lies with “small businesses that actually have a really good business, but the quality of the numbers they put together don’t reflect that, and if they had better numbers maybe they could [secure a loan],” he said. “It’s entrepreneurs who have really good ideas but may not have the mentors to help them think through it.”
If the government can help more of those entrepreneurs learn how to approach lenders and investors more effectively, he said, capital will start flowing again.
“If you can inspire confidence in your lender, your investor or the public markets, I think now is about as good a time as there has been in an extraordinarily long period of time,” Ein said. “I’m currently stockpiling capital because it’s such an attractive time to have it.”
However, rather than expanding, some of the programs the federal government has in place to provide small business education could soon lose a large chunk of funding.
In their latest budget outline, SBA officials proposed cutting more than $10 million from Small Business Development Centers and the agency’s SCORE program, which provide basic counseling and mentorship services — like helping business owners apply for loans.
The cuts would help pay for a new training course targeting more well-established firms; a program that SBA Administrator Karen Mills has likened to a “mini MBA.”
“This was just never going to be an area where there was a silver bullet, never going to be an area where there was one solution for all small businesses,” Sperling said about the decline in small business lending. “It’s hard, because you’ll make a great advance in one area, but someone will say “that doesn’t do anything for me.’”
“We have moved the ball forward in some areas, for some start-ups, for some small businesses,” he added. “But we know there is a long way to go.”