document as a .PDF)
Statement of the Naperville Area Chamber of Commerce
55 South Main Street, Suite 351
Naperville, IL 60540-5381
p: (630) 355-4141 f: (630) 355-8335
To: House Committee on Financial
Regarding: Regulatory Reform: Examining How New Regulations are Impacting
Financial Institutions, Small Businesses and Consumers in Illinois
By: John Schmitt
President & CEO
Naperville Area Chamber of Commerce
Delivered: Monday, December 5, 2011, 9:00 a.m.
Through the commitment and engagement of our Members, the Naperville Area
of Commerce provides leadership for the benefit of the business community by
economic growth, advocating the interests of business, providing service and
Members and community, and meeting Members’ needs.
The Naperville Area Chamber of Commerce is the second largest Chamber of
Commerce in Illinois and has received
the prestigious designation of 5-Star Accreditation from the United States
Chamber of Commerce. An honor bestowed
on only 75 Chambers in the nation, out of the nearly 7,000, for their Member’s
involvement and engagement in promoting free enterprise and strengthening their
regional business community.
Statement of John Schmitt
President & CEO
Naperville Area Chamber of Commerce
December 5, 2011
Chairman Bachus, Ranking Member
Frank, distinguished members of the Financial Services Committee, and members of
the Illinois delegation, thank you for the opportunity to speak with you today.
My name is John Schmitt and I am the president & CEO of the Naperville Area
Chamber of Commerce, a regional chamber in the western suburbs of Chicago.
Our Chamber is proud to have approximately 1,400 members of every size and
sector. Our Chamber’s diverse membership base includes small startup companies,
Main Street retailers, nonprofits and some of our nation’s largest companies.
This provides us with regular interaction with a wide spectrum of business
backgrounds, needs, business models and challenges. On behalf of all of our
members, thank you for holding this field hearing and studying how recent
legislative and regulatory changes are affecting the availability of credit for
The hearing’s other panelists are issue experts about how the Dodd-Frank Act and
creation of the Consumer Financial Protection Bureau are affecting the banking
industry and affecting the accessibility of credit. These bankers are the
experts because they are the businesses that are dealing on a daily basis with
bank examiners, officials and, of course, customers seeking loans.
Today, I am here to provide you with an update from the business community and
to explain the environment small businesses are operating in and the general
themes we hear from our members about the availability and accessibility of
From the outset, I would like to emphasize that the Chamber firmly supports
sound consumer protection regulations. Our national economy and global economy
are still struggling to recover from the depths of one of the worst meltdowns in
the history of civilized society. Small businesses, who are the vast majority of
our membership and businesses in America, have been hurt mightily during the
So while we are discussing what changes could be made to improve the
accessibility of credit, I think it is important to remember just where we’ve
come from over the past several years.
The recession and its aftermath have decimated the small-business community.
Small businesses are reeling from soft consumer demand, lowered home values, a
difficult economic climate, and difficulty maintaining and obtaining credit.
The cumulative result is that existing businesses have been pushed to the brink,
and many have had to close. For reference, we recently completed a review and
estimate that since January 2008, 300 businesses that were members of our
Chamber have closed and gone out of business.
New businesses are finding it difficult to get started. While small business is
inherently a risky enterprise during the good times, the recession and the
resulting softness in our economic climate has been a toxic mix for too many
entrepreneurs and job creators.
While there was a need to save those “too big to fail,” for the safety and
soundness of America’s economy and the global economy and financial system,
today, it is the small businesses, the smaller institutions and the American
people, that are paying the price to restore the financial system to health.
Thankfully, the credit markets are opening again, but I fear they are open only
for some of our nation’s business community. For the small-business community,
there are too many hurdles and too much uncertainty in quickly obtaining
loans—even for seemingly credit-worthy businesses. There are additional examples
of this sentiment available later in my statement.
I believe there are two competing desires that are seemingly at odds and are at
fault for the difficulty in small businesses to obtain credit. From a macro
perspective, there is the desire get the economy growing, which will require
businesses to have ready access and available credit. This desire is juxtaposed
with the continuing efforts of the regulatory community to ensure stabilization
of our banking system, making sure it remains systemically healthy, averting
failures and, of course, avoiding any further bailouts.
I’m reminded of my high school economics class and the lesson focusing on our
inability to have our cake and it eat it, too.
I don’t know if regulators understand the perils and risks of having tunnel
vision on their quest to ensure that the mistakes of the past aren’t repeated
are having on the business community. The Chamber doesn’t fault them for this,
it is the job of the regulatory community to regulate and prevent too much
leverage from threatening our financial system—but we hope they are hearing from
you, our elected leaders, on the importance of enabling banks to lend to small
businesses and startup firms.
Loans to small businesses didn’t cause our economic meltdown, but it seems as if
our natural reaction to the financial collapse and past abuses may be hampering
our ability to recover by making it too difficult for small businesses to obtain
Unfortunately, I am afraid that we are just in the beginning of a long and
difficult struggle for small businesses to obtain the credit they need to stay
open or to expand their operations, hire additional workers, and invest in
America’s communities. I say this because we repeatedly hear that business
owners are spending more of their time working on obtaining credit rather than
running their businesses or working on actually growing their business.
One of the most puzzling and disheartening stories we repeatedly hear at the
Chamber is a bank turning away or revoking credit from longstanding and
long-established customers. Often with very little communication, small
businesses are told that their existing arrangements must be reworked or will
not be renewed or that a business must infuse a significant amount of capital to
get a loan renewed.
For a small business, this results in a frantic and difficult chase to secure
financing. This is a distraction from running their business and weighs heavily
on their decision to hire additional workers.
Reports From the Trenches
At this point, I would ask permission to enter the following anecdotes into the
record. I would ask your permission in refraining from using the business names
or organizations that they were seeking loans from. The Chamber isn’t passing
judgment on why their experiences turned out as they did, I just want to provide
you with examples of what we have heard. And it is important to note that we
heard from several organizations that have reported no problems accessing
credit. Generally, these were long-established organizations, and a vast
majority of our negative experiences come from businesses in the startup phase
of their business.
On Main Street and in general, the business community has seen a change in their
banking relationship. There is a new party in the transaction, and that is the
banking regulator. Often, businesses seeking loans are told about this
mysterious party, and, often, bad news is delivered in the name of the
While I know the construction industry and real estate markets are widely
credited with playing a major role in the financial meltdown, there are two
anecdotes that speak directly to this point.
The first is the example of a local construction and land developer who, despite
never missing a payment and having 100 percent, again 100 percent occupancy, had
to go to 22 banks before he could obtain the credit necessary to continue to run
his business. Not a good experience and one that is directly attributable to the
industry’s changing valuations of certain assets.
Another is the example of one of the most prominent real estate development
firms in our community. They were a conservative organization and were not
overly leveraged. They had a path forward to survive the recession and remain a
going concern. Instead, however, banks stepped forward and would not renew their
loans but rather sought millions of additional capital be infused to maintain
the status quo.
Like the previous example, this business had never missed a payment, and none of
the properties were distressed. At the end of the day, the owners faced a choice
between infusing millions into the enterprise and slogging it out or taking the
option of simply walking way.
After review and debate by the business owners, they decided the path they would
take would be to file bankruptcy and close down. Both the bank and the business
were within their rights to act as they did, but we did not achieve the desired
New Business Startups
Our Chamber is pleased to provide meeting space and other assistance to the Fox
Valley SCORE chapter. Every week, the volunteers at SCORE meet with individuals
seeking the American dream—to start a business. Before the recession, generally,
the advice focused on the need to develop a business plan to submit to a bank.
Now, however, many of these entrepreneurs struggle to find available credit for
their concept. A SCORE counselor recently told me that they were advising
clients to seek access to private capital in lieu of the traditional course of
brining their business plan to a bank. It’s not to say that every person who
thinks of starting a business is taking this path, but I think it speaks volumes
to the challenges facing new businesses.
One of the SCORE counselors advises clients on his experiences running a small
business and the difficulty they face in financing. This counselor did not have
a loan renewed for his business that was in the pharmaceutical industry, and a
business with $9 million in revenue and 50 employees shut its doors.
Another very successful recent retail startup contacted me about my testimony
today. This business owner has a great retail concept and has been doing very
well since they opened their business over a year ago. As they have pursued a
loan to expand, they have been repeatedly denied. They have been told it is
because they don’t have a three-year track record.
Meanwhile, they’ve put hundreds of thousands of dollars of their savings into
the business to get it launched. They are growing increasingly frustrated at the
inability to obtain financing. While retail businesses are a risky, if we want
to fill the shopping centers, strip malls and downtowns of America with stores
and workers—we need to have a ready supply of credit available to entrepreneurs
with an idea and a concept.
This business owner has been looking to obtain financing from private sources,
alumni networks and others. However, the lack of access to credit has been
frustrating and diverted significant attention away from growing their business.
The Need for Credit for Existing Businesses
Another example from our membership I would like to share with you is the story
of one of our Chamber’s Small Business of the Year Award winners and Chamber
board members. He’s been trying to do exactly what this county needs, purchase
another business, invest in it, take a new retail space, and hire additional
After being told by his bank, where he had a longstanding relationship, that
financing would not be possible, this entrepreneur has spent the past 10 months
trying to find someone else who would step forward and provide the financing. He
is awaiting final approval from an SBA lender. However, the inability to obtain
the financing has delayed the expansion and investment in this business.
Another example I would like to share is one I learned from speaking to one of
our community’s most prominent business leaders. They have a 25-year track
record and have several successful business ventures in town.
Their business, a hybrid showroom and retail storefront, is a partnership with
another prominent and successful business partner. They saw opportunity in the
marketplace and wanted to expand into a new product line. While seeking a loan
from an institution where they have significant deposits, they were told they
could get a loan for the amount they requested but only if they put the same
amount of money in a cash deposit at the same bank.
Thankfully, these entrepreneurs had the means to make this arrangement work, but
it does not speak well to the availability of credit to credit-worthy
The Role of Credit
It is important to remember that many small businesses, unlike large
corporations, often rely on an “all-of-the-above” means of financing their
business. They use and risk their personal credit, cash, home equity loans,
collateral, credit cards, anything and everything to get their business through
the lean times.
Small businesses, entrepreneurs and startup companies most need credit to be
available and cheap during their lean times. Small businesses need banks to give
them loans when the small businesses need it not when it works for a bank’s
ratio or when they have a proven track record.
Unfortunately, it appears that our banking system and banking regulators have
grown risk averse and unwilling to take a chance on small businesses when they
most need it. We need a capital structure that finances the hopes and dreams of
America’s entrepreneurial class.
As I said before, small business is an inherently risky enterprise. It brings
with it the greatest reward possible in the American dream. We need a system
that can evaluate and review concepts and new ideas and find a way to quickly
and promptly provide an answer. Our Chamber believes endless and lengthy delays
in obtaining credit are negatively impacting our economic recovery.
There is no regulatory structure, loan classification system or ratio that can
define whether a small-business concept will be successful. We have tens of
millions of small businesses in this country because we have entrepreneurs
willing to risk it all and people willing to invest in this opportunity.
We hope these examples today echo what you have heard as you visit with your
constituents so that it leads this committee toward taking action to make it
easier for small businesses to obtain and access credit. Our economy relies on
trial and error, success and failure. We urge you to keep a close eye on the
regulatory and banking system to make sure that it is not stacked against
funding the American entrepreneur. Our nation desperately needs this talented
group of people to bring us back to prosperity.
Our Chamber asks the members of this committee to ask the regulatory authorities
to continue to focus on the impact new mandates have on small businesses.
Overall, the Small-Business Regulatory Enforcement Fairness Act panel has been
successful at reworking regulations that would have a significant and burdensome
cost on our nation’s small businesses. The Chamber and our members hope that you
would ask that all of the rules, regulations and mandates required in Dodd-Frank
be considered on the impact they have on the small-business community.
Small businesses do not have a compliance department or the benefits of
economies of scale. Every regulation and the time it takes to comply shows up
directly on their bottom line.
Please remember that small businesses use every means possible of financing
their business, and any actions that increase the costs of borrowing or credit
directly impact the ability of small businesses to open and ultimately compete
in the marketplace.
We hope you will continue you efforts to understand why small businesses are
finding it so difficult to obtain loans. If at the end of your examination you
feel that the regulatory community is taking an inappropriate or overly
conservative approach toward the availability of credit to small businesses, we
urge you to use your regulatory and oversight authority toward making changes
that will increase the lending and availability of loans to budding
entrepreneurs and small businesses.
Thank you for the opportunity to speak with you, and I am happy to respond to
any questions you have. Thank you for your service to our nation.
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