Congressman Sander Levin submitted the following testimony today to the House Financial Services Subcommittee on Oversight and Investigations which held a field hearing at Lawrence Technological University in Southfield.  The Congressional panel received witness testimony on small businesses’ struggle to secure loans and smaller financial institutions lack of access to capital during the current economic downturn.

 

Statement Submitted by Representative Sander Levin

House Financial Services Subcommittee on Oversight and Investigations

Field Hearing Entitled: “Improving Responsible Lending to Small Businesses”

November 30, 2009, Southfield, Michigan

 

Chairman Moore, Ranking Member Biggert and Members of the Subcommittee, thank you for the opportunity to submit a statement for this important hearing. 

 

The examination of issues regarding access to capital is essential to our economic recovery. Everywhere I go in Southeast Michigan I hear from businesses large and small, from real estate to automotive, who say they are working day and night to maintain and even grow their business, but they cannot get a loan.

 

The story has become all too familiar: a firm has been in business for years, often for two generations or more, has been with the same bank for years and developed a strong credit record. But as both the business and the bank have suffered through the recession, the bank cuts the line of credit, or calls an outstanding loan or substantially tightens terms. And just as the business needs extra credit to survive the downturn, or buy materials to resume production or hire back workers, or take advantage of reduced asset prices to start a new development, the needed credit is just not there.

 

Most of our local financial institutions are doing their best to support their customers and neighbors, but we continue to hear horror stories about regional and national banks that seem to be running from Michigan just as fast as they can. Indeed, I have heard time and time again from investors and other business persons long active with impeccable business credentials that they believe that when it comes to extending credit, Michigan is being “redlined.”

 

I understand that there must be some contraction of credit reflecting lower collateral values and other factors, but something is very wrong when financial institutions, many of which have received massive funds from the Federal Government, are denying credit to reliable entities anxious to extend their business operations in Michigan. This rush to exit a community and an auto industry that have been very good to these banks over the years is deeply troubling, and risks a self-fulfilling prophecy in which these large banks refusal to extend credit unnecessarily undermines the viability of their customer.  

 

Manufacturing is capital intensive, and the surest way to push a manufacturing business under is to deny them the capital necessary to buy materials and maintain equipment. Indeed, in testimony before the Subcommittee today, Dave Andrea of the Original Equipment Suppliers Association points out that an automotive suppliers banking relationship may be a better predictor of its survival than the fundamentals of its business.  

 

Most of our local financial institutions are doing their best to support their customers, but they’ve been hurt by the recession and financial crisis as well. We need to do more in Washington to support their efforts. I hope that this hearing can help cement the consensus that seems to be emerging around some proposals, such as increasing SBA loan limits. I also hope that it will provide some new and creative ideas about how Michigan businesses can gain access to badly needed capital. 

 

The Michigan Economic Development Corporation has done excellent work in developing a model to support auto supplier diversification that I believe can be adapted to a national program.  As a member of the Ways and Means committee, I look forward to working with the Financial Services Committee to follow-up on the testimony heard today and tackle a problem that we know is hindering our State and Nation’s economic recovery.