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JEC Report: Small Business Employment: Tighter Credit Standards Slow Hiring

May 18 2010

REPORT: Tighter Credit Standards Slowing Small Business Hiring


Washington, D.C. – Small businesses, which employ three out of every four workers in the United States, continue to face tight lending standards that are limiting hiring in this critical segment of the economy, according to a new report by the U.S. Congress Joint Economic Committee (JEC).

The report, entitled Small Business Employment: Tighter Credit Standards Slow Hiring,” shows that small business hiring continues to decline while hiring by mid-size and large businesses began to increase in the middle of 2009.  Analyzing previously unpublished data from the Job Openings and Labor Turnover Survey (JOLTS), collected by the Bureau of Labor Statistics, the report shows that even as the economy gains strength, small business hiring remains well below its pre-recession levels. 

Additionally, the JEC report shows:

  • Tighter lending standards put in place after the financial crisis have remained in place.  Higher credit standards hit small businesses especially hard because small businesses generally rely on bank loans to support their day-to-day operations and growth, and they lack other funding sources available to larger companies.

  • Small business hiring in 2009 was 20 percent below its 2001-2007 annual average.  In the years leading up to the recession, small businesses hired an average of 44 million people each year.  In 2008, small business hiring dropped to 40 million, and in 2009, it dropped again to 35 million workers. 

  • SBA lending has dropped sharply. The number of loans guaranteed by the Small Business Administration and the value of those loans have fallen considerably since the start of the Great Recession.  The number of loans plummeted from 108,000 in 2007 to fewer than 46,000 in 2009.

“Small business is the job creation engine that powers this economy, but this report shows that tighter lending standards are making it hard for that engine to get in gear,” said Congresswoman Carolyn B. Maloney, Chair of the JEC.  “We have to do everything we can to spur lending to small businesses so that they can increase their hiring and continue to drive the recovery.”

Senator Charles E. Schumer, Vice Chairman of the JEC, said, "Small businesses are the lifeblood of our economy, and there won't be a true economic recovery until we increase the flow of credit to get them going again.  This report shows a troubling decline in hiring by small businesses that is a direct result of their access to loans.  We will be pushing legislation soon in the Senate to increase the volume of loans to small businesses.  This is a critical step to putting more New Yorkers back to work.”

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The Joint Economic Committee, established under the Employment Act of 1946, was created by Congress to review economic conditions and to analyze the effectiveness of economic policy.
 www.jec.senate.gov

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