Study Shows Credit Crunch Hitting NYC Small Businesses
New York City – Small businesses in New York City saw a nearly 40 percent drop in the number of Small Business Administration guaranteed loans they received in 2008 as compared to a year ago, according to data released today by Representative Anthony Weiner (D – Brooklyn and Queens), a member of the House Commerce Committee, and Representative Nydia Velázquez (D –Brooklyn, Manhattan and Queens), chairwoman of the House Small Business Committee.
The new data, compiled from the United States Small Business Administration (SBA), found:
- The total number of SBA loans provided to New York City small businesses dropped 39% – from 4,011 loans in 2007 to 2,427 loans in 2008
- The total amount of SBA loans provided to small businesses in New York City dropped $64,316, 812, or 18%, in 2008 – from $358,598,000 in 2007 to $294,281,188 this year
- Queens businesses borrowed 45% less in 2008 – a $48,057,500 drop, the largest of any of the boroughs
- Businesses in the Bronx experienced a 50% drop in the number of loans they received in 2008 – the largest drop of any of the boroughs
- Staten Island actually saw a 4% increase in the amount of loans received – an increase of $416,000
Small businesses employ over half the nation ’s workforce and are estimated to generate 70% of all new jobs. But with the economy now mired in an historic financial crisis, many small firms are struggling to secure the capital they need to stay in business.
Entrepreneurs have had lines of credit drastically reduced and, in some cases, revoked altogether. In the most recent Federal Reserve Senior Loan Officer survey, over 75% of lenders said they had tightened lending standards for small firms. Meanwhile, 90% reported having increased the cost of small business credit. Under these conditions, even entrepreneurs who have managed to weather the storm thus far are abandoning plans for growth – efforts that would otherwise create new jobs.
The United States Small Business Administration (SBA) helps our nation’s small firms. SBA’s 7(a) loan program represents the single largest source of long-term, fixed-rate financing for these businesses. However, a combination of costly program fees and insufficient Administration support has significantly weakened 7(a). Today, the program is feeling the full effects of the credit freeze, effectively cutting off the last source of financing for small businesses.
In a letter to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke (pdf) , Reps. Weiner and Velázquez are urging the Federal Reserve to establish a temporary lending facility. Doing so would restore vital liquidity to the financing markets and also allow SBA lenders to replenish their funds, jumpstarting the small business credit pipeline.
Rep. Weiner said, “When the New York City economy catches a cold, small firms catch pneumonia. Access to loans is essential – and in many cases, literally makes the difference between a business that floats and a business that sinks. These funds need to flow so we can restore confidence in the economy and create jobs.”
Rep. Velázquez, who is chairwoman of the House Small Business Committee, said, “With lending to New York small businesses down 40 percent, clearly none of the 1.6 trillion dollars spent on the bailout has made it into the hands of small firms. The steps we have instructed the Federal Reserve and the Department of Treasury to take will increase capital, helping entrepreneurs create the jobs we need to get the economy back on track.”
Mark Jaffe, President of the Greater New York Chamber of Commerce, said, “Small business owners and entrepreneurs, the backbone of New York City, need an equal footing when it comes to the lending industry. I thank Congressman Weiner and Congresswoman Velazquez for their efforts to help protect small businesses.”