U.S. Small Business Administration logo
U.S. Small Business Administration logo - 
Listen To The Story


BOB MOON: Just about no one escaped the credit crunch during the recession. But small businesses really got squeezed -- credit lines called in, credit cards canceled and bank loans reduced or unavailable. Lending fell more last year than at any time since 1942, according to the FDIC. Making things worse: As of this week, the Small Business Administration has run out stimulus funding to guarantee bank loans on favorable terms. At a House hearing today, legislators grilled bankers and regulators on what they plan to do to jump-start lending.

Marketplace's Mitchell Hartman has more.

Mitchell Hartman: The SBA has spent the $500 million it got from the stimulus last year. The money was used to bolster guarantees and reduce fees on bank loans that it backs for small businesses. The House put funding in its jobs bill to extend the program through September, but the Senate left the provision out. Now anxious business owners are waiting for Congress to act.

Larry Nannis is a CPA in Massachusetts and incoming chair of the National Small Business Association.

Larry Nannis: If the economy starts to turn around, and this thing doesn't happen for the next three, four, five, six months, there are going to be a number of our small businesses poised to expand and there isn't going to be any lending for them.

The president has another idea: pump $30 billion in bank bailout money into community lenders.

Nannis: Putting that money back in the hands of the community bankers who seem to be the ones who are more likely to lend than some of the larger bankers, makes a lot of sense.

Some Democratic lawmakers want to go one step further. They say, why not let government lend directly to small businesses and eliminate the banker middleman altogether.

Economist Jane D'Arista at the University of Massachusetts says this worked during the Great Depression.

Jane D'Arista: But then, are you going to get that past the people in the Congress who are leery of big government? I don't know.

SBA officials say they have no interest in becoming a bank for small businesses. They say they don't have the staff or underwriting expertise to do the job.

I'm Mitchell Hartman for Marketplace.

Follow Mitchell Hartman at @entrepreneurguy