No Time for Businesses to take their Eyes off Washington: Easing Credit Crunch

Posted on January 11, 2011. Filed under: Uncategorized |

Signs emanating from Washington indicate the credit crunch may be easing, but this is no time for small businesses to take their eyes off the action in Washington.

With uncertainty around every corner, small businesses and the financial services sector should be watching to make sure the new political dynamic works to facilitate a resumption of easy credit for businesses and consumers alike.

The Republicans now wielding power in the House have vowed to boost the economy through policies aimed at helping business and creating jobs. At the same time, President Obama, chastened by the results of November elections, seems ready to pursue compromise.

Overall, the GOP plan is to attack the administration’s regulatory policies and cut spending. Among the first targets will be provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act, though opponents of the bill have yet to say if their plans will be aimed at easing access to credit.

Republican Rep. Spencer Bachus of Alabama, the incoming chairman of the House Financial Services Committee, has said he wants to change certain provisions possibly including banking regulations.

Facing a divided Congress for the first time, Obama seems prepared to compromise somewhat on business matters. His appointment of William Daley as White House chief of staff was praised by U.S. Chamber of Commerce President and CEO Thomas J. Donohue, who called Daley “a man of stature and extraordinary experience in government, business, trade negotiations, and global affairs.”

Likewise, President Obama’s selection of Gene Sperling to head his National Economic Council could be a good sign. Sperling was the architect of the Small Business Lending Fund, the administration’s initiative to ease the credit crunch by providing community banks with cheap capital to boost lending to small businesses.

And as the recovery continues, the financial system seems headed toward stabilization on its own. According to a recent survey of senior loan officers by the Federal Reserve, many banks are no longer tightening the availability of credit.

“On net, banks eased standards and terms over the previous three months on some categories of loans to households and businesses (and) substantial fractions of banks reported…that standards for many categories of loans would not return to their longer-run averages for the foreseeable future,” the Fed report said.

For small businesses in particular, this could mean easier access to credit in 2011, since the Fed has instituted a near-zero target for short-term interest rates and a $600 billion program of bond purchases.

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