Inconsistent Banking Rules Hurt Small Businesses

From CNBC: Rep. Graves: Small Business Credit is Key To Improving Economy

Representative Sam Graves is the Chair of the House Small Business Committee, and not surprisingly he’s concerned about small business and their access to growth credit. His blog (from several months ago) runs through the usual statistics that have been floated the the media since this sputtering recovery has started.  Small businesses are responbile for 60% to 80% of all new jobs and they employ over half of the private sector work force; but despite being small, they still have a need for dependable consistent credit.

Of course with the financial crisis, both businesses and lenders have been squeezed. Lower revenues coupled with skittish lenders dialing down their SMB lending has signed the death warrants of many small businesses that just can’t weather the storm: See this sad (and for WAIN Street, local) story on the Friendly’s Restaurant chain).

With the federal government doing a number of things to help induce lenders to loosen up and start giving more cash out to small businesses, it’s alarming to hear Representative Grave’s assertion that inconsistent regulation is fighting against these efforts.

“Lynn Ozer, Executive Vice President of Susquehanna Bank in Pottstown, PA, in a recent hearing said that the economic circumstances of the last several years combined with increased federal banking regulations have created the, “Perfect storm of circumstances that together serve to stifle banks’ abilities to make credit available to small businesses.”

And when asked about whether government regulations were restraining or restricting the lending practices for small banks, she responded, “What we found is that the FDIC regulators are inconsistently applying regulations throughout the banking community.””

One step in the right direction of more evenly applying regulation is having a consistent way to understand SMB Credit risk. A universal benchmark, like the WAIN Street Credit Index, that is outside of lenders own risk management systems could be a key tool for regulators helping them to keep the playing field even and apply the rules fairly.