Credit to the community: proposals offer new funding source for CDFIs, expand SBA express program

Momentum continues to build in Washington around expanding small business access to sustainable credit, despite the postponement of the hearing to consider the state of small business lending in local markets in the House Small Business and Financial Services Committees. Keeping credit flowing to small businesses is critical, especially in times of recession and high unemployment. Small businesses are engines for job creation, creating roughly 80 percent of new jobs and employing over half of private sector employees. Ensuring that small businesses are equipped to grow through productive, sustainable credit and create new jobs will be a vital component of economic recovery.

Community development financial institutions, or CDFIs, play a key role in providing financing to small businesses, particularly those in traditionally underserved communities that have been hit hardest by the crisis. Recent Woodstock research outlined some of the challenges CDFIs face raising capital in a challenging economic climate, and in January Woodstock called for expanding federal support to CDFIs through the Troubled Asset Relief Program (TARP). Fortunately, President Obama recently announced that the Department of Treasury would expand CDFI access to TARP funding by increasing the maximum amount of capital CDFIs may apply for, offering low-cost rates, and assisting troubled CDFIs to return to a viable position by matching federal funds to those raised from private donors. These welcome changes will help more credit reach the communities who need it most through banks and credit unions with track records of commitment to their communities.

A new proposal from Congresswomen Melissa Bean (IL-8) and Kathy Dahlkemper (PA-3) would expand access to credit for many small businesses. H.R.4598 proposes changes to the Small Business Administration (SBA) Express Loan program, which streamlines the process of obtaining an SBA loan by reducing paperwork and turnaround times. Currently, SBA Express offers loans or revolving lines of credit up to $350,000, with up to 50 percent of the loan guaranteed by the SBA. H.R.4598 would raise the federal guarantee up to 75 percent for two years to address the current problem of highly constrained credit, while increasing the loan limit to $1 million. This would encourage banks to lend more money to more small businesses, allowing them to spur economic growth and job creation. Woodstock supports the Dahlkemper-Bean proposal while reiterating the need for loans of all sizes to be made all along the spectrum of small businesses. Very small businesses still play a vital role in our economy, so their smaller loan requests should not be overlooked if the loan limit is raised to $1 million.

Increasing the flow of sustainable credit to small businesses, especially when traditional lenders are restricting credit, is an important first step towards spurring job growth. Additionally, the establishment of a strong and independent Consumer Financial Protection Agency would set protections for all small business owners and help address discriminatory lending against women- and minority-owned businesses, creating a framework for small business owners to thrive and focus on business expansion.