Bernanke Says `Creditworthy' Small Businesses Can't Get Loans
Federal Reserve Chairman Ben S. Bernanke. Photographer: Ramin Talaie/Bloomberg
Federal Reserve Chairman Ben S. Bernanke said small businesses are having a tough time getting loans they need to expand or stay afloat and keep the U.S. economic recovery going.
Some creditworthy firms with “strong” cash flows and a decline in collateral values are have trouble getting loans, Bernanke said today in opening comments in Washington to a Fed- hosted conference on efforts to reverse a drop in lending to small businesses. The forum caps more than 40 meetings the Fed has held around the U.S. since February.
The central bank chief is increasing pressure on lenders to expand credit to help boost U.S. growth and employment after a report this month showed private employers added fewer workers to payrolls in June than forecast. Banks’ loans to small businesses fell to $670 billion from $710 billion over the past two years, Bernanke said, citing government data.
“Making credit accessible to sound small businesses is crucial to our economic recovery and so should be front and center among our current policy challenges,” said Bernanke, 56. “Our message is clear: Consistent with maintaining appropriately prudent standards, lenders should do all they can to meet the needs of creditworthy borrowers.”
Last month, Bernanke and fellow Fed policy makers reiterated a pledge to keep the main interest rate close to zero for an “extended period” and said “tight credit” is still holding back consumer spending.
‘Very Difficult’
“The formation and growth of small businesses depends critically on access to credit,” Bernanke said today. “Unfortunately, those businesses report that credit conditions remain very difficult.”
More broadly, U.S. commercial and industrial loans held by banks have declined to $1.24 trillion as of June 30 from $1.6 trillion at the end of 2008, Fed data show.
Bernanke attended one of the series of meetings in Detroit last month and today recalled a business owner’s comment there that, “If you thought housing had declined in value, take a look at what equipment is worth.”
Many proprietors have had to borrow on their personal credit cards or from retirement accounts, Bernanke said.
Today’s conference, held at the Fed’s headquarters, includes several panel discussions with government and industry leaders and concludes with remarks from Fed Governor Elizabeth Duke, the only former commercial banker on the central bank’s Board of Governors.
Bankers at the conference said they were willing to extend credit and urged small-business owners to meet with their community lenders.
‘Confidence Issue’
“It’s a confidence issue,” said Jack Hopkins, director of the Independent Community Bankers of America.
“We need to get confidence back into the markets, and that’s difficult when we’re hovering around 10 percent unemployment,” he said. Hopkins, who is also chief executive officer of CorTrust Bank NA of Mitchell, South Dakota, said community banks are “more than willing to lend.”
The House of Representatives last month passed a bill that would create $30 billion plan to offer community banks incentives to loan money to small companies. All but three Republicans opposed the legislation, which they say amounts to a bank bailout.
The bill “would be very helpful” and a “good boost to the economy,” Hopkins said.
One problem banks face is “healthy borrowers not wanting to borrow,” said Kevin Watters, chief executive officer for business banking at JPMorgan Chase & Co. The New York-based lender is “trying to get borrowers off the sidelines,” he said.
Another challenge is that banks have “limited access to information on which to make decisions” about lending to small businesses, Denise Pickett, an executive vice president at American Express Co. Getting banks more and better information about potential borrowers is “absolutely critical,” she said.
To contact the reporters on this story: Scott Lanman in Washington at slanman@bloomberg.net; Ian Katz in Washington at ikatz@bloomberg.net
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