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Weak small business lending draws fire

By Daniel Wagner
AP Business Writer

Washington — The Treasury Department’s programs to ease credit for small businesses have not provided the lending necessary to help many businesses grow and create jobs, according to a new report.

Treasury has rolled out a series of multibillion dollar plans that were supposed to help small businesses get loans, but many companies still face failure because they can’t get loans, according to the report, which was issued Thursday by the Congressional Oversight Panel.

“It is not clear that any of the … programs in place to date (have) had a noticeable impact on small business lending,” according to the report. Many of the programs do not apply to the small banks that lend disproportionately to small businesses, according to the report.

Small businesses are critical to the economic recovery. Companies with fewer than 500 employees have created 60 to 80 percent of new jobs since the mid-1990s, according to the report.

The Congressional Oversight Panel was created by Congress to oversee the $700 billion financial bailout passed at the height of the financial crisis. To fulfill the bailout’s goal of promoting growth and creating jobs, according to the report, small businesses must have access to credit.

“If credit is unavailable, small businesses may be unable to meet current business demands or take advantage of opportunities for growth, potentially choking of any incipient economic recovery,” according to the report.

The value of banks’ outstanding small business loans fell 9 percent between 2008 and 2009, according to the report. That’s more than double the 4.1 percent decline for overall lending.

That places unusual pressure on small businesses, which can’t raise money through other means such as bond markets like their larger counterparts, said panel chairwoman Elizabeth Warren.

“Many small businesses face a bleak landscape with the economy in deep pain,” Warren said in a call with reporters. “Many have had to shut their doors, and many survivors are still struggling to find credit.”

The report praises an Obama administration proposal to reroute $30 billion from the financial bailout to community banks. The program would have incentives for banks that increase lending to small businesses and would be more costly for those that do not.

Yet it could take months for the program to win congressional approval and get started, Warren said.

She said it is difficult to gauge the effect of the bailout programs on small business lending because Treasury did not require banks to say how they were using the money they received.

“Without good data, policymakers are flying blind,” she said. “It is virtually impossible to get a clear assessment of these programs when we can’t collect good numbers.”

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