Small Business Lending Fund Act Of 2010

Floor Speech

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Mr. MERKLEY. Mr. President, I am delighted to partner with my colleague from Louisiana. Senator Landrieu has been a passionate and effective advocate for small business across this country. She has worked incredibly hard to drive through this small business jobs legislation, recognizing that the success of our economy is going to rise or fall on the success of our small businesses.

That is what brings us together tonight. We have come to talk about the small business lending fund, which is an essential component of assisting our small businesses.

Small businesses employ one-half of our Nation's workforce. However, less than one-third of small businesses today are reporting their credit needs are being met. Indeed, 59 percent now rely on credit cards to finance their daily operations. That is an increase of about 15 percent from where we were at the end of 2009.

I can tell my colleagues that at every townhall meeting I hold, folks stand to talk about how their credit lines have been cut or they have a business opportunity for which they normally could easily get a loan from a longstanding banking partner, but they are not able to get that loan. Often, the reason the banks cannot make the loan is because they are at their leverage limit. There are legal limits for every dollar they hold, how many can they lend out. If they are at that limit, they cannot make a new loan no matter how good the opportunity.

This is a losing situation because our community banks are right on Main Street.

They see and know the opportunities. They understand the capabilities of individual entrepreneurs and managers, so putting that expertise to work is going to fuel job growth in this Nation. But we can't put it to work if the banks are unable to lend or are at their leverage limit.

The Small Business Lending Fund will proceed to inject liquidity into our economy, and that is like oil into an engine--a job-creating engine--to the tune of as much as $300 billion in additional lending to small businesses on Main Street, and this will occur under the Small Business Lending Fund without any dollar of subsidy from the U.S. taxpayer.

Indeed, the Congressional Budget Office has studied this proposal and has recognized and reported that it will save $1 billion to taxpayers over the next 10 years, and that is just from the earnings of the payments that the banks will make back to the funds that are injected as additional capital into our community banks.

But think about this: Every small business that is able to see an opportunity because it can gain access to credit is also going to make money on that proposition. When they make money, they pay additional taxes. CBO doesn't score the additional taxes, but recognize that in addition to the $1 billion of savings on interest payments, there will be all the benefits that will flow from additional jobs--additional taxes paid on the income from those jobs, additional profits to small business, additional revenue from those profits. So the real return is even greater to the taxpayer.

But most importantly we are creating jobs, and that is a return that is hard to measure. When a family has a job, they can diminish their reliance on every other program. The most important foundation of a family is a good job, and that is what the Small Business Lending Fund is all about. It does indeed have prominent endorsements, as my colleague mentioned: the Independent Community Bankers of America, representing 5,000 community banks on Main Street which are having to bypass the opportunities they are seeing because they are at their leverage limit. Recognize that they can make loans, which is good for them, good for small businesses, good for their communities and certainly great for the families who get the additional jobs. Also, the National Bankers Association, the National Small Business Association, the National Association for the Self-Employed, the Small Business Majority, and so on and so forth.

Let me give one example from Oregon. John and his business partner have owned a small retail store in Portland, OR, for over 25 years. It is a store I have visited often. Because of lackluster consumer spending, John has made a lot of sacrifices to keep that business afloat during this recession. He has had to reduce his staff, cut the hours the shop is open, and he and others have had to take pay cuts. But to add insult to injury, his bank threatened to drop his line of credit.

John has never missed a payment, never had a late payment, but in this process of reducing exposure or reducing the required leverage limits, banks are cutting lines of credit, and John's line was being cut. Finally, after negotiation, they agreed to renew his line of credit every 90 days but every 90 days charge a fee, and on many occasions to raise the interest rate.

He has been looking for a new lender who will work with him and not against him, but that is hard to find in this economy, where lender after lender is affected by the same constraints. This story is repeated, different versions, hundreds of times throughout Oregon, and thousands of times throughout this Nation.

How would a Small Business Lending Fund work? Essentially, it capitalizes the community banks, so with that additional capital they can make more loans. If they get more loans out the door, then the repayment rate--the dividends they would pay back to the taxpayers--is reduced to as low as 1 percent. If they do not get loans out the door, the payments go up to as high as 7 percent. So there is a significant incentive to take these funds, after a bank is recapitalized, and get them out the door.

That addresses several of the challenges folks have raised. There has been concern about banks that might hoard cash and say: Well, we will prepare in case some assets are devalued in the future or that banks might say: We will wait until a better time, when everything is surging forward. Well, things won't surge forward unless we get lending out to small businesses. That is why this structure of incentives is critical.

The banks that will qualify are banks that have CAMELS ratings, which means capital adequacy, asset quality, management, earnings, liquidity, and sensitivity--or exposure to market risk. So a bank that is in deep trouble isn't going to be in a position to take advantage of this. But banks that are sound and healthy will, and therefore this makes it a good investment, an investment that has significant return to the taxpayer but, more importantly, a big return to our communities.

I would also note that this will go hand in hand with the program to make additional grants to State-based small business programs. My colleagues, Senators Levin and Warner, have been very involved in helping to forge that program. These things go together. Community banks on Main Street will see opportunities and State-based small business programs will see opportunities. They probably will see the same opportunities. These will work together to take us out of this recession.

I wish to read a note that I received:

Dear Senator Merkley: Overall, I believe the majority of financial support under TARP went to the large investment banks, insurers, FNMA, FHLMC and other giant institutions on Wall Street. It is now very important to revive the economy that the government assist Main Street, which includes community banks, if we are to have job creation. Jobs are created by small business that bank at community banks.

And the writer goes on:

As a community banker in Oregon, I urge you to retain the $30 billion small business lending fund. ..... Community banks are well-positioned to leverage the SBLF and have established relationships with small businesses in their communities to get credit flowing quickly. Leveraging the $30 billion funds with community banks would potentially support many times that amount in loan volume to small businesses--as much as $300 billion in additional lending.

The writer concludes:

Banks that increase their small business lending by certain threshold percentages will pay reduced dividend costs, ensuring that their incentive to lend matches their great capacity to do so.

Thank you very much, Sincerely Tom.

That was a letter from Tom of M Street Bank.

I thank the many colleagues who have put themselves behind this idea and supported it. An earlier rendition of this idea was called ``Banking on our Communities'' and had support from Senators Carper, Hagan, Kerry, Levin, Pryor, Stabenow, and Mark Udall, and I wanted to mention that they have been sponsors of that legislation.

I urge my colleagues to stand for small businesses, stand to provide a solution to the problem of liquidity and access to loans that is plaguing our small businesses, stand to help not just your community banks but your community businesses and your families who will benefit from the jobs that it will create.

I thank my colleague for her passionate and effective leadership on this particular issue and for her leadership on our Small Business Committee.

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Mr. MERKLEY. Mr. President, I again thank my colleague for her leadership. We together as a Senate need to stand with our small businesses so we can revive our communities, restore our economy and create jobs for our families. I thank the Senator again for the terrific job she is doing.

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