By Sarah Borchersen-Keto, CCH Washington Staff Writer

The small business sector is finding it harder to access credit, and is also being denied the benefits of recent reductions in interest rates, participants at a House Small Business Committee roundtable discussion heard March 1, 2002.

"Small and mid-sized businesses must be able to access the capital they need for growth and survival. Without it they cannot spur our economic recovery," Small Business Committee Chairman Rep. Donald Manzullo (R-IL) said.

Dean Garritson, vice president for small and medium manufacturers at the National Association of Manufacturers (NAM), said recent data strongly supports the notion of a credit crunch for small businesses. According to a NAM survey conducted in February, 34 percent of small manufacturers are finding it harder to get credit, while 47 percent say the cost of borrowing is the same or higher.

Garritson said NAM's concern is that there will be a two-speed economic recovery, with smaller businesses lagging behind their larger counterparts.

National Small Business United President Todd McCracken agreed that smaller businesses are seeing fewer benefits from recent rate cuts, while at the same time banks are tightening their credit standards for the small business sector.

Lee Mercer, president of the National Association of Small Business Investment Companies, said banks have clearly made a decision that it is more profitable to be involved in large business lending.

James Ballentine of the American Bankers Association confirmed that banks are indeed in a cautious period, but added that underwriting standards should start to ease as the economy strengthens.

Giovanni Coratolo, director of small business policy for the U.S. Chamber of Commerce, told the roundtable that the small business sector relies on "relationship lending." As a result of the trend toward consolidation in the banking industry, the traditional relationship between small business owner and local banker has been eradicated, he said.

At the same time, small businesses have also been experiencing deterioration in their balance sheets, Coratolo said, with the net result that the sector is now facing a "survival mentality."

Paul Merski, representing the Independent Community Bankers of America, noted that the proposed fiscal year 2003 funding levels for the Small Business Administration will cover only half the expected small business lending needs next year, and urged Congress and the administration to restore adequate budget appropriations.

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