Business for Shared Prosperity

By Alain Sherter

What happens if financial lobbyists kill the proposed Consumer Financial Protection Agency? Then “we’ll be at the mercy of [banks'] lending practices,” says Margot Dorfman, CEO of the U.S. Women’s Chamber of Commerce.

Or in other words, we’ll be stuck with the status quo. That’s a disaster for small businesses, meaning the country at large.

Dorfman says financial institutions are reeling in credit for such enterprises, which often rely on credit cards, home equity loans and other personal loans for funding. “What we’ve seen is that our members have suddenly seen the banks cut their lines of credit or pull them entirely,” she says. “And these are firms that have been in business for decades.”

Small businesses generate upwards of 70 percent of new jobs in the U.S. Such employment is vital to the welfare of communities from sea to shining sea. Simply put: There will be no sustained economic recovery until small businesses are flourishing again.

That, in turn, largely depends on these companies’ ability to secure credit, which is in sharp decline. Between June 2008 and the June 2009, loans to small businesses and farms fell $14 billion, according to the Federal Reserve.

Revitalizing the nation’s small businesses also requires protecting them from predatory lending. For that, you need an independent agency whose sole focus is to root out unfair and deceptive lending practices.

Women business owners are particularly vulnerable to such abuse, Dorfman notes. Before the financial crash, for instance, they were 41 percent more likely than men to have received a subprime loan, regardless of income. Equally troubling, millions of women used a home equity loan to fund both their home and their business. So the credit shortage means they’re in danger of losing both.

Again, however, this is less of a gender issue than a matter of national self-preservation. Many small businesses recognize this, which is why they’ve mobilized in favor of the CFPA. Perversely, groups such as the USWCC’s counterpart, the U.S. Chamber of Commerce, contend that the agency would hurt small businesses by, among other things, causing lenders to reduce the amount of available credit.

Wrong. Ensuring that financial products are intelligible to consumers and business owners is a prerequisite for healthy lending.

Copyright 2010 BNET

http://industry.bnet.com/financial-services/10006919/why-small-businesse...