Business for Shared Prosperity

Trade groups are silent on a $30 billion fund to spur lending

By Mark Drajem, Laura Keeley and David Henry
Bloomberg BusinessWeek, July 29, 2010

In 2008, three of the best-known business trade groups in Washington blitzed Congress to approve a $700 billion bailout for Wall Street. Two years later, those groups—the U.S. Chamber of Commerce, the National Federation of Independent Business, and the National Association of Manufacturers—are missing in action as the smaller companies that account for the majority of their membership seek a $30 billion rescue of their own.

The silence is leaving car-parts makers, franchise owners, and community bankers to fend for themselves in pushing for a small business lending fund, which has languished in Congress since President Barack Obama proposed it late last year. The Senate could vote on the fund as early as July 29. The hands-off approach reflects the public backlash against government spending, particularly the Treasury's Troubled Asset Relief Program, which rescued the country's biggest banks but sparked populist ire. Federal spending has become a flash point in many of this fall's congressional races.

The measure would ease terms for loans guaranteed by the Small Business Administration, provide $12 billion in tax breaks, and issue grants to states for business loans. While lawmakers in both parties—and the business lobbies—lauded those provisions, most Republicans balked at a related $30 billion fund that would be used to encourage community banks to lend to small businesses. "This is as American as apple pie," Obama said of the bill on July 28, as he met with small business owners at a Tastee Sub Shop in Edison, N.J.

Supporters say community banks, which would be able to borrow from the fund at low rates, could leverage the $30 billion into $300 billion in loans, providing added stimulus to the economy. "Businesses that have enjoyed years of profits and expansion have had loan requests rejected and credit limits restricted," Christopher J. Kersting, president of the Specialty Equipment Market Assn., wrote in a letter to members of Congress.

Some critics fear the community-bank fund could induce smaller lenders to make imprudent loans. Lending data show that small business borrowers have defaulted at a far higher rate than big businesses have. At JPMorgan Chase (JPM), for example, second-quarter charge-offs were 4.04 percent for small businesses vs. 0.74 percent for all commercial loans. The way the fund's backers see it, "everyone's a good borrower, and that's just not the case," says Eliot Stark, managing director at Capital Insight Partners in Chicago.

The major business groups, which together spent more than $47 million to lobby for tax cuts and against the Administration's health-care overhaul in the first six months of this year, haven't been moved by arguments such as Kersting's. The silence "certainly is peculiar," says Frank Knapp Jr., president of the South Carolina Small Business Chamber of Commerce, which is critical of the U.S. Chamber. "But it's not unusual that they lose interest when the money is going to community banks and small businesses."

The Bottom Line: Trade groups that lobbied for the big bank bailout aren't backing a $30 billion fund that could stimulate small business lending.

Drajem is a reporter for Bloomberg News. Keeley is a reporter for Bloomberg News. Henry is a senior writer at Bloomberg Businessweek.

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