Hearing of the House Small Business Committee - Review of the Recent Federal Efforts to Improve Credit Conditions for Small Businesses

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REP. YVETTE CLARKE (D-NY): Thank you very much, Madame Chairwoman and Ranking Member Chavez for holding this very timely and very important hearing. Thank you gentlemen for coming and bringing as much information to us as you can.

I have to tell you that I was elected in the 110th session, and since I've been here, I've heard of the creation of so many programs to help small businesses that have yet to be implemented. So, you know, it's very hard for us to sit still and hear about the dynamics taking place within the Treasury of creating a program and not having a timetable, not coming with clarity about how it's going to be implemented and when it's going to be implemented, particularly in a time of crisis, with all due respect.

As we all know and we're too keenly aware, small businesses remain the lynchpin of the U.S. economy because they are the foundation of our country's job markets and an essential element of job creation, providing close to 80 percent of employment opportunities for Americans. According to the Commerce Department's Minority Business Development Agency, about 3 percent of all minority owned businesses generate more than 1 million (dollars) in revenues annually. Unfortunately the financial crisis has created a catalyst for much broader and complex economic problems. At the same time, the Federal Reserve has reported that domestic banks said that they tightened their lending standards for small business loans over the previous three months in July and said they were charging more for these loans.

I'm from New York City. This uncertainty is created by home price declines and financial market stress has been detrimental for New York's economy and jobs leveled off in New York City and little has changed since that time. Our Emergency Economic Recovery Plan has not stabilized the financial markets the way that Treasury Secretary Paulson and President Bush had hoped, despite the 700 billion -- excuse me, the $700 billion recovery plan for financial institutions which was supposed to encourage commercial banks to start lending again. Getting a loan these days is still extremely difficult, even for those with immaculate credit ratings.

In order to improve these economic trends, we must continue to implement sound policies that are expedient and timely, that goes to the whole question of creating policy and implementing it. And I'm just kind of frustrated by the fact that I've just heard about so many programs and none of them have been implemented. And if perhaps we had looked at expediting them earlier on, perhaps there would be some fluidity within our markets at this time.

But I'm particularly concerned about women and minority-owned business. What has been the impact of the current financial and credit market dislocation over small businesses, particularly women and minority-owned businesses, the most vulnerable of the entrepreneurial ecosystem?

MR. KROSZNER: Thank you very much. This, of course, is something that's extremely, extremely important to make sure that all entrepreneurs, women and minority-owned business entrepreneurs make sure that they have access to credit. So that's something that is very important.

And they have been very much affected, as we've been discussing. The small-business owners have been affected.

From our 2002 survey of business owners for African-American and female-owned businesses, personal or family assets tend to contribute about as much to the capital needs of the startup of businesses as did business loans. So the challenges in the housing markets are extremely important for this segment of entrepreneurs.

The survey also documents that African-American and female-owned businesses tend to rely both on personal and business credit cards. And so that's why trying to make sure that people do have access to credit, trying to stabilize the markets to provide a sound liquid financial system that can provide lending, can provide some stability to the housing market is extremely important because these are businesses that are very much affected by the macroeconomic turmoil that we're facing.

REP. CLARKE: It's great to know that you sort of have a handle on, you know, what the problem is. And I think what we're trying to get here are, you know, what are the mitigation factors taking place, as we speak, that is going to assist these business owners? And we're not getting that from you, and I think that's some of what you're hearing today.

I want to know, is there evidence that the current credit and financial crisis related to the mortgage markets is disproportionately affecting minority and women-owned businesses? Have you seen the evidence of it? Are the numbers coming in to you so that you're clear on the extent of the impact?

MR. KROSZNER: We are certainly looking at exactly these kinds of issues and gathering data at the local level throughout the Federal Reserve system to try to assess exactly these kinds of issues.

As I noted, from our earlier surveys it suggests that women and African-American-owned businesses tend to rely more heavily on using their housing. And obviously, housing having such a challenge suggests that, even though we don't have the final data in, that these groups of entrepreneurs are affected very much.

REP. CLARKE: So are there mitigative measures that are in the pipeline or that are ready to be deployed, knowing that this particular sector has relied on that methodology of entrepreneurship? Are we doing anything currently to mitigate the impact and the blow to their ability to continue to operate in our system?

MR. KROSZNER: That is very important. And so what we're trying to do by providing confidence in the financial system, by providing liquidity in the financial system, that that will allow the borrowing to take place for the extent that they do borrow. And we're certainly trying to work on a variety of loss mitigation and foreclosure mitigation techniques, working very closely with industry, HOPE for Homeowners. We've got the -- (inaudible) -- project.

REP. CLARKE: I understand that. But we know that these groups have historically not been able to go the traditional route for financing for their businesses. That has been a long-standing challenge, historically. Why are we looking at those measures now when we know that's the x factor for those businesses? They can't and have not been able to access the traditional lending institutions as the majority has. Is there something being done to focus on these businesses specific to the nuances of how they access financing?

We know how they access financing. It's not the traditional route. And what you're working on right now is freeing up those banks that have historically not lent to these businesses.

MR. KROSZNER: Well, it's very important to try to continue to have credit provided so that people who use credit cards -- as I mentioned, a lot of financing comes through business and personal credit cards -- make sure that that market operates as well as it can because that's certainly very important for providing credit to these important groups of entrepreneurs.

And also the personal assets in housing is very important. And so the variety of foreclosure mitigation programs and loan modification programs will be focused exactly on these groups that rely most heavily on that rather than rely on traditional bank lending.

REP. VELAZQUEZ: Time has expired.

REP. CLARKE: Thank you very much, Madame Chair.

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