Feds should help small businesses

The Forest Grove News-Times, Jul 21, 2010

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Federal Reserve Chairman Ben Bernanke got it right Monday when he told the nation’s banks that it’s time to provide increased lending to small businesses to support improvement of the national economy.

Oregon’s bankers should respond to Bernanke’s message next week when board members of the Federal Reserve Bank of San Francisco meet with Portland-area business leaders to take stock of regional economic conditions.

The simple message is that the economy is better than it was a year ago when unemployment stood at 11.6 percent, but the sputtering recovery’s durability is in doubt.

As of June, unemployment in Oregon remained at 10.5 percent. That’s a slight improvement from May’s figure of 10.6 percent, but the rate has not changed significantly during the past eight months. Meanwhile, the number of Oregonians claiming unemployment benefits rose by 17 percent from May to June.

These are not just statistics. These numbers represent 174,000 people in need of jobs. Given that staggering number, it’s natural to think of employers like Merix, SolarWorld and Stimson Lumber as our best hope for putting folks to work. But historically, economic recoveries have taken root at places like Van Dyke Appliances, Doherty Ford and Grande Foods. It’s the small restaurant owner who hires a part-time cook, or the cleaning service that moves a part-time custodian to full-time.

We believe it’s time to foster attention and confidence in the small-business sector. Across the U.S., small businesses employ about half of the nation’s workers and contribute to more than 50 percent of America’s job creation.

We understand that success in business requires more than an ability to obtain a loan. But we also know that many solid companies are being held back because they lack access to investment capital and to short-term lines of credit that aid day-to-day operations.

Locally and across the nation, banks can do their share to aid small businesses and advance the recovery by taking a hard look at credit policies. Each bank should use a test that measures whether loan policies are contributing to or inhibiting their customers’ performance.

The Federal Reserve Board and federal regulators have a job to do as well. Regulators have forced banks to keep more funds in reserve to protect against loan losses that might endanger banks. On the surface, this is prudent financial policy. Yet we hear from many businesses that they believe these tighter policies are an overreaction to years of laxness in banking regulations, and that the new rules are making it very tough for small businesses to invest even incrementally in their operations.

Given that most small businesses are extremely cautious about overreaching, we suspect that any changes in how banks manage credit will assist in a slow, but healthy improvement for small-business performance. What follows will be greater economic momentum, more jobs and improved consumer confidence.