IN the government's current drive to help create employment for out-of-work Americans, bankers and industry leaders insist that the best tool for rebuilding the nation's job base is entrepreneurs' access to capital.
Small businesses provide jobs for two-thirds of the workers in the United States. President Clinton has recognized that in order to turn the "jobless recovery" into a robust working environment, small businesses must borrow to expand their operations and create new ventures.
Financing for these companies is far more constricted than it is for corporate giants, which have ready access to money by leveraging their massive assets and selling shares to the public. Commercial banks are often the only, if not the ready, source of funds for entrepreneurs.
California Gov. Pete Wilson (R), whose state holds the dual distinction of weathering the nation's highest unemployment rate since the recession began and being the chief spawning ground for small business, says "the absence of credit has drained the state of its vitality."
Urged by political leaders like Governor Wilson, as well as bankers and business executives, President Clinton is moving ahead with plans to make it easier for banks to lend to small businesses by cutting red tape and limiting rigorous loan examinations.
When the initiatives are carried through in the coming months, for example, business owners who pledge property as collateral on loans should not have to go through an expensive appraisal process, and major banks will be allowed to resume making loans to small businesses based on their reputations rather than their financial criteria.
The American Bankers Association (ABA) lauded this decision. "It will instantly allow bankers to make vitally needed loans to creditworthy small businesses that have had trouble meeting the government's magic formulas," says ABA President William Brandon Jr. "This will spur economic growth and job creation while costing the government nothing."
The view from regulators, however, is not so enthusiastic. "Bank regulators are not going to loosen the reins very much," says a senior US Treasury Department official. Their whipsaw experience in the 1980s, he says, "has created a very cynical view" of Clinton's intended reforms.
This official says that "regulators have a 10-year track record that began with Ronald Reagan telling them to get off the backs of businesses and allow banks to lend liberally; then the regulators were accused of causing bank failures by allowing banks to extend bad loans and they were instructed to clamp down on lenders. After that, they were accused of causing the credit crunch."
Today, he says, Clinton is asking regulators to make another dramatic swing by "getting rid of the whole concept of credit analysis. Regulators just know they'll get burned if they go along with this," he says.
During the recession, businesses that were left with costly inventories, puffed out payrolls and over-extended when their balance sheets were contracting, soon became debt averse.
While many bankers stress that demand has slackened, borrowers lament the lack of available resources.
But Federal Reserve Board Vice Chairman David Mullins sees progress in both areas. "The banking industry now appears to have a strong capital base and ample liquidity to fuel economy recovery," and given economic growth during the last six months of 1992, he says, "loan demand should be picking up as well." This "bode[s] well for the outlook for increased small business lending."
There are some encouraging signs. NationsBank, the country's fourth-largest bank company, announced that it expects to make more than $1 billion in small business loans over the next several years.
Credit may ease for small minority-owned business borrowers who have encountered a particularly tough time with lenders.
This week the ABA kicks off countrywide workshops for its members on the basics of minority lending. Inner-city community leaders hope that this will lead to greater employment in blighted areas.