~Highlights efforts to boost access to capital so they can hire and grow~
Jun 18 2010
Contact: Kevin Hall (202-224-2023)
RICHMOND – U.S. Sen. Mark R. Warner (D-VA) met today with Virginia small business owners and lenders to discuss his specific efforts to help small businesses grow and put more Virginians back to work. Since last fall, Senator Warner has worked closely with the White House to design new tools to help small businesses access needed capital to help strengthen the economic recovery.
“Our small businesses create two out of every three new jobs in this country, and it is small business that will be the driving force behind this economic recovery. The problem is small business owners have also been some of the hardest hit by this recession,” Senator Warner said. “Many banks clamped-down on lending in the midst of the financial crisis, it’s been difficult for small business owners to take out the loans they need to open up shop, and existing small businesses have found it really hard to finance inventories, make payrolls or expand.”
The group of business owners and bankers from Hampton Roads, Richmond and Northern Virginia met with Senator Warner today at the downtown Richmond headquarters of Consolidated Bank & Trust, founded in Virginia in 1903 by Maggie Walker as the St. Luke Penny Savings Bank. Maggie Walker was the first woman to charter a bank in the United States, and today Consolidated Bank & Trust is recognized as the oldest continually African American-operated bank in the country.
Last October, after discussing small business credit concerns with members of the Virginia Retail Alliance, Senator Warner organized a group of 33 Senators in urging the White House to take action to unclog frozen credit lines to small businesses. Since then, he has worked closely with U.S. Treasury Secretary Tim Geithner to design a state small business credit initiative, currently pending in Congress (H.R. 5297, the Small Business Lending Fund Act of 2010), that will help expand lending programs for small businesses and manufacturers at a time when budget shortfalls are forcing many states to cut back on existing lending programs.
"This initiative by Senator Warner is a tremendous example of good government at work," says Virginia Retail Alliance President & CEO Susan Milhoan. "We made the Senator aware of the problem, he met with our members, did his due diligence and took decisive action."
Senator Warner’s proposal would create a $2 billion State Small Business Credit Initiative Program to supplement state small business lending efforts, including Virginia’s Capital Access Program (CAP) at the Virginia Department of Business Assistance (VDBA). The proposal allows these federal funds to be used by CAPs to make a small payment into the loan-loss reserve funds of participating banks to help expand the range of small businesses to which they are willing to lend. These reserve funds are used to offset a bank’s loss should a borrower default. Extra reserve funds provided by CAPs means that banks have more money to cover potential losses, making banks more willing to lend to those business that might be “on the bubble” as loan applications are evaluated.
According to VDBA, Virginia’s CAP has made 43 small business loans during the first ten months of this fiscal year, compared to nearly 100 loans last year and almost 130 loans in FY 2008. VDBA officials say the downward trend is directly tied to the tightening credit markets. In addition, the Commonwealth of Virginia has not provided any state funding support for the Virginia CAP since 2007.
Other states that have CAPs have had great success in improving small business access to credit. In North Carolina for example, funds in the amount of $4 million are expected to generate over $120 million in small business loans, which means every dollar in public funds translates into 30 dollars in lending to small businesses.
Senator Warner’s proposal achieves several important goals. First, the program increases small business lending but it is not another bank bailout: banks would only get federal funds as they make qualified CAP loans. Second, it improves access to credit by improving the lenders’ ability to lend to businesses who otherwise might not qualify under conventional lending criteria. Third, banks would not feel compelled to take excessive risks because they, too, will have ‘skin in the game.’
“Virginia small business owners tell me they are ‘recovering,’ but they are not yet ‘recovered,” Senator Warner said. “So it remains vitally important that we work to support Virginia’s small businesses by knocking-down the barriers that prevent them from getting loans and investing in the future.”
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