Access to Credit
Message to Congress - Legislation is urgently needed to help Small and Medium Sized Manufacturers access credit to stimulate economic recovery
Manufacturers currently lack the access to credit needed to help finance their day-to-day operations, invest in expansion of domestic operations and ensure a disruption in the critical supply chain does not occur. Small and medium sized manufacturers (SMMs) in America continue to bear the brunt of the financial crisis – trapped between their customers and creditors. Traditional lenders have either drastically reduced lines of credit or denied loans to companies that are healthy or temporarily impaired due to the global economic crisis.
SMMs need a coordinated approach between borrowers, lenders, and regulators to increase sound lending to allow small manufacturers to purchase equipment and rehire employees as the economy recovers. Congress and the Administration should pass legislation and regulations to address cash flow and collateral problems.
Following are a few actions that One Voice recommends:
- Establish Small Business Loan Fund with Unique Regulations: Federal regulators should develop a unique set of consistent and transparent guidelines to govern small-business (defined by SBA NAICS criteria) loans placed in a specific pool or program;
- White House Small Business Loan Fund – Inject Capital to Banks, Address Capital Ratios: The President’s Small Business Loan Fund proposal presents a critical first step in shoring up the financial stability for community banks. However, local lenders still face two critical needs—addressing capital ratio requirements and the injection of critical funds or guarantees to encourage lending to small businesses. Providing backing to these banks must be combined with addressing a balanced Tier 1 capital ratio for banks in order to foster and encourage lending;
- Accounts Receivable Insurance Program: For the complex manufacturing supply chain, most middle-market companies must purchase materials and equipment at their own cost, waiting months before receiving partial or full payment from a customer. Lenders are restricting lines of credit based on a borrower’s accounts receivable (A/R) due from particular customers, especially those in automotive and other volatile sectors. Banks are wary of lending to certain industries for fear the borrower’s customer will not pay in a timely manner. A private government guaranteed accounts-receivable insurance program could alleviate concerns of both borrower and lender while improving A/R as a form of collateral.