Credit Union Lending Bill Would Help Small Firms

John Arensmeyer

John Arensmeyer

Co-authored by Erica Schoder at R Street Institute and originally featured in The Huffington Post:

A look at the numbers makes it clear that America’s economy relies on small business. After all, they create a majority of new jobs and employ four out of six American workers. And it’s not often political leaders miss an opportunity to tout the importance of this critical constituency.

Like all businesses, small businesses need credit to innovate, expand and prosper. That’s why the two of us — whose organizations often come down on opposite sides when it comes to political issues — both believe Congress must act to free up more small business credit. In particular, we think lawmakers should approve a regulatory relief effort that would allow credit unions to lend more money to small business. Doing so is simply common sense.

First, some background: Small businesses today face a dire credit situation. As a result of the financial crisis, not a single new commercial bank has received a federal charter in the last two years. During the 1990s and early 2000s, more than 100 banks received charters in a typical year. Since small businesses tend to rely heavily on start-up banks, this presents a problem. A survey from Small Business Majority found that more than 60 percent of small business owners find accessing credit to be a major challenge. Furthermore, a Pepperdine University study found less than one out of five business owners seeking a loan of $5 million or less got what they wanted. Even as the economy has recovered, some indexes of small business lending have actually dropped. Congress has made an effort to change this situation, such as creating a “small business lending fund,” but the numbers demonstrate it’s just not enough.

A pragmatic solution to this problem is to change outdated regulations that limit credit unions — democratically governed, nonprofit financial cooperatives — from meeting consumer needs. Right now, federal regulations bar credit unions from lending more than 12.25 percent of their assets to businesses. As a result, businesses that belong to credit unions have $13 billion less in capital available to them. Legislation in Congress would change this and allow credit unions to lend up to 27.5 percent of their assets. This change would have no additional risk for taxpayers and create thousands of new jobs at small businesses.

The proposals to change the regulations have significant bipartisan support. In the House of Representatives, 141 representatives with significant numbers from each party have signed on. In the Senate, 21 members, many more of them Democrats than Republicans, also support the bill. The real opposition to the proposal comes from banks that believe they’ll lose business. While these banks certainly deserve a place at the table, the banks’ own interests should not come ahead of those of small businesses or the economy as a whole.

The bottom line is simple: The slow recovery has not been good for the small business community. Getting more credit to small business owners can get them, and the national economy, on track to a full and sustained recovery. There’s no reason for Congress to delay action. Credit unions must be allowed to make more loans to small businesses.

Help for Small Business After Hurricane Sandy

John Arensmeyer

John Arensmeyer

In the aftermath of one of the biggest storms the U.S. has ever seen, Northeastern small business owners are working tirelessly to deal with the damage Hurricane Sandy wreaked on their facilities, inventories and bottom lines. Because of the superstorm, many hardworking entrepreneurs were forced to close their doors for a few days, a week, or in some cases longer—which means lost profits. For some, it will be a matter of time until business as usual resumes. But as small business owners continue to recover from this huge setback, the U.S. Small Business Administration (SBA) is standing by to help.

There are a several SBA disaster assistance resources available for East Coast small business owners who were impacted by Sandy. First, businesses and non-profits of all sizes can apply for loans of up to $2 million to deal with physical damage to their businesses. This money can help them repair or replace their buildings and inventory.

Second, the same types of businesses can apply for Economic Injury Disaster Loans (EIDL). Intended to help make up for profits lost while businesses’ doors were closed, these loans are also worth up to $2 million. Regardless of whether their businesses suffered property damage, owners in affected areas are eligible for EIDL loans to help with their working capital needs.

Finally, small business owners who own their homes can apply for loans of up to $200,000 to help fix damaged real estate. Along with renters, these homeowners can also apply for loans worth up to $40,000 to repair or replace damaged personal property. Click here to find out more about your options and apply for assistance.

Immediately following Hurricane Sandy, the SBA began conducting damage assessments for affected businesses. They have a full team ready to mobilize at your beck and call, should you wish to have one of these assessments at your business. You can also get free help filling out applications and outlining plans to rebuild at your local Small Business Development Center. To find the location nearest you, click here.

Our thoughts go out to all the small business owners impacted by Hurricane Sandy. This is a difficult time, but small business owners are inherently resilient and will rebound in time. The SBA can help in many ways, and we hope you’ll join us in letting your fellow entrepreneurs know what resources are available to them.

Poll Finds Small Businesses Wary of Fiscal Cliff, Looking for Pragmatic Fix

John Arensmeyer

John Arensmeyer

Originally featured in The Huffington Post:

As Fairfax, Va., small business owner Mike Brey prepares to close the books on 2012, he’s also starting to make expansion plans. But he hasn’t sealed the deal on his two new Hobby Works stores yet — largely because of growing economic uncertainty as we race toward the edge of the “fiscal cliff.”

Mike isn’t the only entrepreneur who’s worried about how business will stand up to the fiscal cliff. In fact, the vast majority of entrepreneurs, 78 percent, are familiar with this situation, marked by a host of tax increases and billions of dollars in automatic spending cuts to begin Jan. 1 if lawmakers don’t devise a plan to reduce the deficit by then. According to a scientific opinion poll Small Business Majority released this week, strong majorities of entrepreneurs are concerned about nearly every fiscal cliff issue they were asked about.

Polling also indicates that these job creators want spending and tax policies targeting the majority of small businesses to be preserved and ones that benefit only a few removed. By nearly a 2:1 ratio, they believe spending cuts for education, healthcare and infrastructure would hurt the economy more than a tax increase on the wealthiest 2 percent.

Similarly, the majority of respondents — more of whom identify as Republican than Democrat, an important distinction given the partisan nature of this debate — also agree raising taxes on the wealthiest 2 percent is the right thing to do in light of our budget crisis. Tax cuts for high-income earners simply aren’t targeted at the vast majority of small businesses, and therefore won’t help them or their customers, the middle class. That’s why a sweeping 86 percent of small employers oppose raising tax rates on households with income below $250,000.

Mike Brey noted that from a business perspective, what he’s most concerned with is consumer demand. That’s what drives his decisions to open new stores, create new jobs and further invest in the company. For demand to be there, he said, “We need to ensure middle class taxpayers have spending money. That means keeping their tax rates where they are now rather than letting them go up, and extending the employee payroll tax holiday so consumers don’t see smaller paychecks next year.”

More than three-quarters of small business owners are worried about a potential 2 percent increase to the employee share of payroll taxes, and more than half are very worried. This tax cut saves the typical household $1,000 annually. Its expiration could lower workers’ take home pay and inhibit customer demand, while also leaving less money in entrepreneurs’ own pockets.

When entrepreneurs have more cash in their coffers, on the other hand, they can invest in their businesses in many ways–by purchasing new equipment, for instance. That ability to invest is also tied to the fiscal cliff. More than eight in 10 entrepreneurs are anxious about impending cuts to the amount of qualified capital investments small businesses can expense.

Small business owner Eric Blinderman, owner of restaurants Mas (farmhouse) and Mas (la grillade) in Manhattan, would love to see an increase in the dollar amount of capital investments small businesses can expense, rather than the major decrease scheduled to kick in. “I’d be far more inclined to invest in new equipment for the restaurants if I could expense more of it. That saved money would go directly back into the economy by helping me expand and create new jobs,” he said. Small business owners across the nation clearly agree with him, as polling found 76 percent are supportive of letting small firms expense these investments up to $1 million.

In addition to tax increases, entrepreneurs are also concerned about spending cuts to occur if no action is taken. About two-thirds find $500 billion in defense cuts over the next 10 years worrisome, as these cuts would impact small businesses working as defense subcontractors. More than three-quarters are worried about infrastructure cuts. And there are several lifelines providing assistance for small businesses that owners show concern over: 68 percent are worried about funding cuts for government contracts and 62 percent are concerned about funding reductions for small business loan and counseling programs under the Small Business Administration (SBA).

Having utilized SBA loans to help build their businesses into the success stories they are today, both Mike and Eric can attest to the importance of robust policies that provide the targeted support small firms need. Across the nation, entrepreneurs are looking for a balanced approach to spending and tax revenues that is mindful of our deficit. But they’re also cognizant of the fact that our economy isn’t out of the woods yet, and we need to foster job growth. Pursuing policies that target the majority of small businesses, not just a few, is a promising way do that.