WASHINGTON — U.S. Senate Majority Whip Dick Durbin (D-IL) joined U.S. Senator Sherrod Brown (D-OH) in leading their colleagues in a letter to the Federal Reserve Board, Federal Deposit Insurance Corporation , to the National Credit Union Administration and the Office of the Comptroller of the Currency, urging them to work with banks and credit unions to ensure that small businesses, especially those owned by people of color, women and elders fighters, have access to safe and solid credit as Main Street recovers from the COVID-19 pandemic.
“Recent research from the Federal Reserve System found that less than a third of small businesses that applied for traditional financing in 2021 received all the financing they sought compared to recent years,” write the lawmakers. “…Banks are choosing to lend to big business, and small businesses are suffering the consequences in an already restrictive environment.”
Lawmakers also pointed to racial and gender disparities in small business lending. “About 14% of Black and Asian business owners and 19% of Hispanic business owners received all the funding they were looking for in 2021, compared to 34% of white small business owners. The COVID-19 pandemic has only deepened pre-existing inequalities in our economy for businesses owned by entrepreneurs from historically underserved communities,” they wrote. “As a driving force in the national economy, businesses owned by people of color, women and veterans must have access to financing opportunities from banks and credit unions.”
Besides Durbin and Brown, U.S. Senators Richard Blumenthal (D-CT), Tina Smith (D-MN), Kirsten Gillibrand (D-NY), Reverend Raphael Warnock (D-GA), Chuck Schumer (D-NY), Mark Warner (D-VA) and Brian Schatz (D-HI) also signed the letter.
A copy of the letter is available here and below:
March 30, 2022
Dear President Pro Tempore Powell, Acting President Gruenberg, President Harper and Acting Comptroller Hsu:
As small businesses across the United States work toward economic recovery from the COVID-19 pandemic, access to financing is critical to sustaining the current rate of small business growth. As new business creation continues, we need to make sure small businesses get the credit they need. As such, we write to encourage your agencies to work with banks and credit unions in their communities to provide safe and secure access to financing for small businesses.
Recent research from the Federal Reserve System found that less than a third of small businesses that applied for traditional financing in 2021 received all the financing they sought compared to recent years. Additionally, the research also found that more than half of companies were in fair or poor financial condition at the time of the survey, and nearly all companies faced at least one operational or financial challenge in the past 12 previous months. The difficulty small businesses face in accessing financing is a significant concern for the economy, as small businesses represent 99.9% of American businesses and employ 46.8% of American employees.
Many small businesses have not returned to pre-pandemic levels of revenue and employment, and this is especially true for small businesses owned by people of color. Research by the Federal Reserve Bank found racial differences in seeking financing among small business owners. About 14% of Black and Asian business owners and 19% of Hispanic business owners received all the funding they were looking for in 2021, compared to 34% of white small business owners. The COVID-19 pandemic has only deepened pre-existing inequalities in our economy for businesses owned by entrepreneurs from historically underserved communities. A driving force in the national economy, businesses owned by people of color, women, and veterans must have access to financing opportunities from banks and credit unions.
Banks are choosing to lend to big business, and small businesses are suffering the consequences in an already restrictive environment. Data reported by the Federal Reserve Banks shows that underwriting standards for business customers diverge primarily based on company size. In a separate survey conducted by the Fed earlier this year, senior loan officers reported a loosening of standards for large and medium-sized businesses than for smaller ones.
Strong deposit growth in banks and credit unions should be used to support increased small business lending opportunities by banks and credit unions in their communities. The latest financial performance data released by the National Credit Union Administration (NCUA) shows that total federally insured credit union assets increased by $215.8 billion, or 11.7%, to 2 $.06 trillion in the year ending Q4 2021, and insured shares and deposits increased $166.8 billion, or 11.4%, to $1.63 trillion. Similarly, total Federal Deposit Insurance Corporation (FDIC) assets in insured commercial banks and thrift institutions increased by $1.9 trillion, or 8.5%, to $23.7 trillion in in the year ending the fourth quarter of 2021, and insured deposits increased by $1.9 trillion, or 10.5%, to $19.7 trillion.
As new business creation has reached record highs in 2021, there is a clear and significant economic need for small businesses to have access to finance. Figures released by the US Census Bureau revealed that 5.4 million new business applications were filed in 2021, surpassing the record set in 2020 of 4.4 million.
We urge bank branches to work with banks and credit unions to encourage more small business lending in a safe and sound way. We look forward to continuing to work with you to ensure that small businesses across the United States receive access to funding to continue rebuilding their Main Street communities.