During an all-day forum held at the Federal Reserve in Washington, D.C., Federal Reserve Chairman Ben Bernanke called on banks and regulators Monday to do more to get the flow of capital flowing to small businesses. During the forum, which was aimed at addressing the small-business credit crunch, Bernanke acknowledged that the problem of credit existed, but that there was no clear consensus on what was causing the problem.

NSBA President Todd McCracken was a speaker at the event and urged policymakers to move forward with efforts to expand credit, including the President’s proposal to develop a fund for community banks to enhance their small-business lending. Since the onset of the financial breakdown in 2008, NSBA has been an outspoken proponent for ensuring small-business access to capital.

During his address, Bernanke cited that lending to small businesses fell to below $670 billion in the first quarter of 2010, down from more than $710 billion in the second quarter of 2008. The three primary reasons Bernanke cited: tightened standards on the part of loan officers and regulators; the downturned economy and its financial implications on small business; and decreased demand from small businesses.

This forum was the culmination of 43 meetings held by the Fed throughout the country in an effort to get a better handle on the issue and determine a path forward. Bernanke raised doubts over claims that banking had merely returned to normal after years of loose lending standards. He also stated that, despite the claims of many banks that capital is available, even creditworthy businesses have had difficulty getting approved for loans or lines of credit.

Bernanke underscored the importance of financing new start-up companies given their strong contributions to job creation—a lynchpin to economic recovery. "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," Bernanke said.

Despite an easing among major banks on their terms and standards for large-firm loans, the Fed’s quarterly Senior Loan Officer Survey showed lending standards remained tight for small-firm loans, particularly at smaller banking institutions. Bernanke responded to complaints that the Fed’s own bank examiners are a part of the problem adding to tightened standards, and has been urging regulators against a “one-size-fits-all” perspective on small-business lending. He also cited a series of training programs offered by the Fed to bank regulators to encourage responsible small-business lending.

The first national small-business organization to raise the red-flag of a small-business credit crunch, NSBA’s members continue to struggle with financing. According to the NSBA 2010 Mid-Year Economic Report—to be released late-July—a whopping 41 percent of small-business owners are unable to obtain adequate financing for their business. This is up from 39 percent just six months ago, and the highest it has been since NSBA began doing the report in 2008.

 
Please visit NSBA’s Web site, Credit Today, Growth Tomorrow for more information on NSBA’s work to increase capital to small business.