On Friday, the Senate Committee on Banking, Housing, and Urban Affairs’ Subcommittee on Economic Policy held a hearing entitled “Restoring Credit to Manufacturers.” Witness at the hearing included:

  • David Andrea, Vice President, Industry Analysis and Economics, Motor and Equipment Manufacturers Association;
  • Robert C. Kiener, Director of Member Outreach, Precision Machined Products Association; and
  • Stephen P. Wilson, Chairman and CEO, LCNB National Bank

Subcommittee Chairman Sherrod Brown (D-OH) acknowledged that the United States’ “manufacturing sector is in crisis.” He stressed that the sector is critical to “our national security, our global economic leadership, and our stability as a democracy,” and warned that “compromised credit is the newest threat to American manufacturing.” “Everyday there are more small and medium-sized manufacturers … at risk of going out of business because they cannot get the loans they need,” said Brown.

Mr. Andrea called for a three-pronged approach to “lower the risk of potential production disruptions and unintended employment loss,” including an increased focus on general lending, smaller suppliers, and technology funding. In his call for broader lending to the manufacturing sector, Andrea praised the Michigan Supplier Diversification Fund, which specifically targets cash flow, collateral value, and transitional risk, three areas that he called “impediments to lending.” Andrea criticized the $2 million cap for Small Business Administration loans, claiming that they “have limited utility” in the automotive industry. Andrea suggested increasing the limit to $10 million, in order to “meet the needs of manufacturers with substantial raw material, research and development costs.” He also noted that “suppliers are constantly called upon to innovate,” and that such innovation requires “investment in people, engineering, capital equipment, and research and development.” He supported S. 1617 and H.R. 3246, both aimed at providing “greater access” to technology funding for the supply base.

Mr. Kiener urged the Administration and Congress to “reassure financial institutions that returning to sound lending practices with manufacturers is good for their supply base,” noting that many manufacturers merely need “a bridge to next year.” He called on Congress to “establish a mechanism by which lenders can loan to manufacturers without fear of a reduced credit rating.” Kiener criticized the “personal guarantee required under SBA programs,” noting that increasing the loan limit is a positive step, but not if it requires a larger personal guarantee.

Mr. Wilson defended current lending practices, stating that “lenders and borrowers are exercising a prudent approach to credit.” “Against the backdrop of a very weak economy it is only reasonable that all businesses … exercise caution in taking on new financial obligations,” he said. He noted that a National Federation of Independent Business report that showed “only four-percent of business owners” identified financing as their top business problem. Wilson called for a “changes in the regulatory environment” that would reduce FDIC premium payments and relax supervisory responses to the current financial crisis, and asked Congress to “remember the vital role played by good lending in restoring economic growth.”