In a Senate hearing on Tuesday titled Restoring Credit to Main Street, witnesses stated that the inability of small businesses to obtain financing is severely hindering job creation in the United States.
Poor Credit Conditions
According to Senator Carl Levin of Michigan, the first problem employers in his state cite as an obstacle to job creation is the difficulty in obtaining the capital they [rely] on to finance their operations.
He stated that small businesses, even those with good credit and proven revenues, have trouble obtaining financing on reasonable terms.
Levin cited a small manufacturer in his state whose long time bank refused to renew its 5 year loan, even the though company never missed a payment and had adequate sources of revenue.
Instead, it was offered a 90-day loan at an unfavorable rate. The company tried to obtain the 5 year loan elsewhere and was rejected by 28 banks.
Senator Debbie Stabenow, also from Michigan, said that small businesses in [her] state....can't access credit to grow their company.
Some small businesses even have pending orders but are unable to fill them because they lack the upfront capital they need for production, she said.
Local Banks and small Business
Senator Stabenow cited some telling statistics.
She noted that 64 percent of jobs in America come from small businesses and banks with less than $1 billion in assets. The aggregate assets of such banks constitute only 12 percent of the total figure in the U.S. and make nearly half of all loans to small businesses.
While giant firms such as Citi and Goldman Sachs report massive profits, the real lifeblood of many local economies - local banks - don't have it nearly so good, lamented Senator Levin.
He charged big banks with getting the most bailout money and then pulling back the most on lending.
Both Michigan Senators urged legislators to focus more on helping community banks.
We must to something to support community banks so that they can lend to the small businesses that are key to creating jobs in our communities, said Senator Levin.