The Associated Press is looking at the positions that President Barack Obama and Republican presidential candidate Mitt Romney have taken on small business issues. The AP submitted questions to both candidates' campaign staffs. Here's where they stand on lending to small companies:
THE QUESTION: What would you do to help more small businesses get loans from banks?
BACKGROUND: Bank lending to small businesses still hasn't returned to pre-recession levels, according to companies that track commercial loan activity. One reason is caution on the part of small business owners. They don't want to take on debt while they're not sure about the prospects for the economy or their sales and profits. But banks, having been burned by the many loans that went bad during the recession, are also conservative.
They're imposing tougher requirements before granting small business loans. Many banks are also cautious because they must comply with regulations under the Dodd-Frank Act, which was enacted after the financial crisis of 2008. Some of those regulations dictate how banks can lend money. Companies can get loans from banks that are guaranteed by the Small Business Administration, but these loans are just a small part of the total amount of money loaned to small businesses.
The SBA guaranteed $30.54 billion in loans in the fiscal year that ended Sept. 30, up from $22.57 billion in the previous year. Meanwhile, the Federal Deposit Insurance Corp. says unsecured small business loans in the calendar year 2011 came to $282.6 billion, down from $291.8 billion a year earlier.
OBAMA'S POSITION: "When the president took office, SBA lending had plummeted. In just the last three months of 2008 before the President took office, SBA loans dropped 57 percent from the previous year. To help jumpstart business growth and new hiring, the president enacted temporary measures that increased SBA loan guarantees and eliminated fees, while permanently increasing the maximum SBA loan sizes. These measures helped encourage private-sector banks to extend additional credit to small businesses, and in Fiscal Year 2011, the SBA supported a record $30.5 billion in lending to 60,000 businesses.
"To ensure that small businesses had access to the loans they needed, the Small Business Jobs Act established new lending initiatives, including the Small Business Lending Fund and the State Small Business Credit Initiative, which provided support so that community banks and local lenders could have the confidence to extend additional credit to entrepreneurs and small businesses.
"These efforts have helped improve the flow of credit to small businesses - but the president recognizes they are not enough. That is why he launched Startup America, an initiative to support entrepreneurship that includes a new early stage innovation fund to provide matching capital to small business investment companies, and why his budget would provide support to SBA efforts to provide $26 billion in loan guarantees to support private-sector lending. These measures build on the president's broader support for small businesses, including the 18 small business tax cuts he has already signed into law and the additional measures he has proposed to provide tax cuts incentivizing new hiring and investment."
FACT CHECK: SBA guaranteed loans have risen to $30.54 billion in fiscal year 2012, which ended Sept. 30, 2011. That's up from $17.91 billion in fiscal 2009, which began Oct. 1, 2008 and included the first seven and a-half months of the Obama administration; guaranteed loans totaled $22.57 billion in fiscal 2010.
The Small Business Lending Fund was part of the Small Business Jobs Act signed into law in September 2010. Under the fund's rules, the Treasury invested more than $4 billion in 332 banks and financial institutions, giving them more capital reserves in order to make it possible for them to make more loans to small businesses. The Treasury says that as of Dec. 31, 2011, the institutions that received the SBLF money increased their small business lending by $4.8 billion, or 13 percent, since the start of the program in the second quarter of 2011.
The State Small Business Credit Initiative was also part of the Small Business Jobs Act and called for $1.5 billion to be given to state programs that support lending to small business. The government says $435 billion was given to states in fiscal 2011, with the rest to be given in fiscal 2012 and 2013. Earlier this month it issued guidelines to monitor states' compliance with the program.
While the campaign says Obama "cut taxes for small businesses 18 times," some of the cuts were temporary. One was a $500,000 limit on deductions for equipment purchases; the maximum deduction was lowered to $125,000 this year. The president's 2013 budget proposal calls for it to be increased to $1 million.
ROMNEY'S POSITION: "Just like businesses, banks need certainty to operate. President Obama, however, has signed laws like Dodd-Frank that contribute to the highly volatile outlook of the banking industry, making it more difficult and costly for them to offer credit.
"The Consumer Financial Protection Bureau created by Dodd-Frank, for example, has almost unlimited authority to regulate almost every sort of consumer financial transaction and also wields influence over the allocation of credit to consumers and small business owners, alike. As president, Gov. Romney will repeal the elements of Dodd-Frank that inhibit small business access to credit so that entrepreneurs have the resources to fund innovation and job-creation."
FACT CHECK: Romney's campaign did not detail the portions of Dodd-Frank that he would seek to be repealed. But representatives of community banks and credit unions, whose customers include small businesses, have told Congress that the law subjects lenders to scrutiny that makes it harder for them to make loans to small businesses. They also said the requirements that banks have more cash in reserve limits the amount that of money available to lend to small companies.
ANALYSIS: Dodd-Frank "has already proven it has more costs then benefits for consumers, small businesses and the economy," said Karen Kerrigan, president of the Small Business & Entrepreneurship Council, which lobbies on behalf of small businesses.
"Regulators have unlimited authority to intrude upon and nitpick the banks and financial industry." Kerrigan said that unless Dodd-Frank is repealed, the lending environment won't fully heal even if there are more government programs to help small businesses get loans. But, Kerrigan said that "Romney needs to specify the parts of Dodd-Frank he would repeal.
As for the president's position, SBA lending isn't doing as well as his staff claims, said Scott Shane, an entrepreneurial studies professor at Case Western Reserve University's Weatherhead School of Management. "The amount of SBA lending dropped so much during the initial part of the downturn that we are just working our way back to where we were before the recession. ... In inflation adjusted terms, the dollar amount of SBA loans was still less last year than it was in the last pre-recession year — $30.5 billion in 2011 versus $31.1 billion in 2007."
But Shane also said that SBA loans account for only about 0.2 percent of business loans last year. He said a bigger issue for small businesses is the fact that small business owners no longer have the access to personal loans — especially borrowing against their home equity — to fund their companies.